Here is how Bidens proposed 40 capital gains tax could help reduce the 34 trillion national debt

President Joe Biden caused a stir in late April with his proposal to significantly raise capital gains taxes, including the introduction of a tax on unrealized gains. This plan, with a maximum rate of 44.6%, would be the highest in history, surpassing even President Jimmy Carter’s 40% from the late 1970s. However, the main target of the plan is wealthy individuals, with the unrealized gains tax affecting only those with assets exceeding $100 million.

An analysis conducted by American University suggests that the impact of the tax hike would mostly be positive. Given the extreme wealth inequality in the United States, only a small portion of the population would be affected. The study also indicates that the tax increase could help reverse the trend of wealth redistribution to the top 1% that has been ongoing since the 2008 financial crisis, with a reported transfer of $50 trillion from the bottom 90% to the top 1% during the COVID-19 pandemic.

Furthermore, the research suggests that the tax hike could lead to stronger economic growth, increasing the gross domestic product (GDP) by 1% and government revenue by approximately 5%. This potential policy change could also play a role in reducing the country’s soaring public debt. Low-tax environments often lead to high borrowing, as governments are reluctant to cut certain expenses.

In 2023, the U.S. government spent around $6.3 trillion while generating revenue of about $4.44 trillion. If President Biden’s tax plan had been in effect during that fiscal year, and if the study’s estimates are accurate, the deficit could have been reduced by $220 billion. While this may seem insignificant compared to the national debt exceeding $34 trillion, and with borrowing estimates at $1 trillion every 100 days, the impact could be significant in the long run. By reducing the rate at which debt increases, the extra revenue could be allocated to projects and programs that contribute to economic growth surpassing debt accumulation.

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