Biden Administration Seeks To Raise Taxes On Investors

President Joe Biden has now indicated he wants to raise the capital gains tax to a top nominal rate of 39.6%. That would be combined with a surtax on investment income to produce an effective rate of 43.4% for some taxpayers.

And investors who are unfortunate enough to live in a high-tax state like New York, Illinois, or California would face a total tax on investments of well over 50%.

Punishingly high tax rates represent a big disincentive for wealth holders to continue putting capital at risk in the stock market. And some may now be inclined to sell before higher rates kick in. 

Given the 50/50 split in the U.S. Senate, the Biden administration would likely be unable to ram through its tax hike proposal as is. At least one moderate Democrat, Joe Manchin of West Virginia, has indicated he would prefer a smaller tax increase.

But political risks on the tax front could increase after the 2022 mid-term election, depending on how that goes. With a record-high budget deficit projected for the current year, Congress will likely grow hungrier for revenues.

Against this backdrop, prospects for making federal taxation of precious metals fairer seem dim. The IRS has arbitrarily determined that gains on bullion investments fall under the “collectibles” category and are ineligible for the more favorable long-term capital gains treatment applied to stocks.

Clearly, Wall Street has more political sway on Capitol Hill than the sound money movement. But sound money advocates are making progress at the state level.

The Arkansas Senate just overwhelmingly approved a bill to remove sales and use tax on purchases of gold, silver, platinum, and palladium coins and bullion products. Arkansas Senators voted 30-1 to pass this measure onto the Arkansas House of Representatives.

This measure is one of many sound money bills being introduced across the country this year. Bills to remove taxation on sound, constitutional money are also being, or have been, introduced in Alabama, Hawaii, Iowa, South Carolina, Tennessee, and Ohio.

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