Biden Tax Proposal Ominous for American Families

For just over 100 years, the President has been tasked with submitting a budget request to Congress every year. Despite the legislative branch holding the constitutional power of the purse, the Budget and Accounting Act of 1921 requires the President to submit an annual proposal. While the final say comes down to Congress, the presidential budget is a strong indicator of priorities and can set the tone for policy decisions down the line.

President Biden’s fiscal year 2025 budget request should frighten all taxpayers with  a whopping $7.3 trillion cost. However, in the budget rollout, President Biden claimed his proposal would actually cut the deficit by $3 trillion over ten years. A quick look at the proposal shows that he wants to use tax hikes to cut the deficit.

One of the most staggering ideas is the Biden administration’s proposal for capital gains taxes. These are taxes paid on gains from prior investments. Currently, the top rate for capital gains is 20 percent. Under the Biden administration’s budget, the top rate would balloon to as much as 44.6 percent, more than doubling the current rate. Considering that states also tax capital gains, this means the effective capital gains tax rate will exceed 50 percent in eleven states.

This change gets exponentially worse when considering the changes to the estate tax – more commonly referred to as the “death tax” – that the administration proposed in 2021. The Biden administration proposed a repeal of what is known as the “stepped-up basis” rule. This rule is in place to guard inheritors from paying taxes on assets that have appreciated in value since the original owner first acquired it. For example, if a plot of land was worth $500,000 at the time of the initial purchase, but is worth $2 million when the owner passes away, the stepped-up basis rule ensures the inheritor pays taxes based on the new valuation, rather than the previous one.

Without the stepped-up basis rule (and with the Biden administration’s new proposed rates of capital gains taxes) families suffering the loss of a loved one will quickly find themselves in dire straits. First, they will be on the hook for the normal, expected death tax, which is nefarious enough in its own right. Then, given the absence of the stepped-up basis, they will find themselves paying an additional 50 percent on their inheritance.

This is particularly tough on landowners. In rural America, it is not uncommon for families to pass down large tracts of land or the family farm to their loved ones. With property values as high as they are, this could cost quite a bit. However, inheriting land is not the same as inheriting liquid cash. So, the hypothetical family inheriting a plot of land worth $2 million that was worth only $500,000 when it was purchased will be responsible for paying a roughly 50 percent tax on a $1.5 million “capital gain.” In short, they owe the government three-quarters of a million dollars and all they got was land. They either have to go broke or sell their inheritance to pay the tax… on their inheritance.

This is a truly warped view of how taxation should work. However, to fund the administration’s expensive agenda, American families will be forced to pay the bill and this is what that looks like. Even at the macro level, taxing capital gains this way increases risk and decreases reward. This will stifle investment in a way that will harm the American economy in very real ways, depriving up-and-coming businesses of needed access to capital.

When this administration takes a victory lap with its budget, touting the deficit-reducing benefits, American taxpayers need to remember how they plan to get there. Instead of trimming their $7.3 trillion worth of spending requests, the administration would rather extract as much as possible from the American people. That is what this budget request truly represents.