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2020 Democrats push tax hike on wealthy investors

2020 Democrats push tax hike on wealthy investors
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Democratic presidential candidates are calling for increasing taxes on capital gains, a move they argue would make the tax code more fair and help to reduce income inequality.

Many of the candidates have suggested they might raise tax rates on investment gains and end breaks that allow people to minimize their capital gains tax bills.

People pay capital gains taxes when they sell investments. Currently, the top tax rate on long-term capital gains is 20 percent, plus a 3.8 net investment tax for high earners. By contrast, the top rate on individuals’ ordinary income, such as wages, is 37 percent, plus 3.8 percent in Medicare taxes. Analysts have estimated that most of the benefits of the lower capital gains rates go to high-income taxpayers.

Former Vice President Joe BidenJoe BidenMellman: Trump voters cling to 2020 tale FDA authorizes another batch of J&J vaccine Cotton warns of China collecting athletes' DNA at 2022 Olympics MORE, currently leading in many polls, has repeatedly said at campaign events that he thinks capital gains taxes are too low, though he has not specified what he thinks the ideal tax rate should be.

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“We need to get rid of these capital gains cuts and loopholes for the super-wealthy,” Biden, one of the more centrist candidates in the 2020 Democratic field, said at a rally in Iowa in April.

Biden has focused many his comments on eliminating a tax preference often called “step-up in basis,” saying that doing so would raise revenue to cut college costs and reduce the deficit. 

Under step-up in basis, people can transfer investments to their heirs without the investments being taxed at the time of their death. When their heirs sell the investments, they don’t have to pay capital gains taxes on the value that the investment appreciated before they received it.

Sen. Bernie SandersBernie SandersProgressives rave over Harrison's start at DNC Zombie Tax punishes farmers to fill DC coffers Progressives threaten to block bipartisan infrastructure proposal MORE (I-Vt.), who is known for his progressive views, supports taxing capital gains and dividends the same as income from work, according to his campaign.

During his 2016 presidential campaign, Sanders proposed taxing the capital gains and dividends of high-income taxpayers at the same rates as ordinary income, and taxing capital gains at death and when a gift is made.

Sen. Cory BookerCory BookerZombie Tax punishes farmers to fill DC coffers Rand Paul does not support a national minimum wage increase — and it's important to understand why Absences force Senate to punt vote on Biden nominee MORE (D-N.J.) and former Rep. John DelaneyJohn DelaneyLobbying world Coronavirus Report: The Hill's Steve Clemons interviews Rep. Rodney Davis Eurasia Group founder Ian Bremmer says Trump right on China but wrong on WHO; CDC issues new guidance for large gatherings MORE (D-Md.) have both said that they want to tax investment gains and wage income the same and use the revenue raised from the change to help offset the cost of expanding the earned income tax credit — a refundable tax credit that benefits low- and middle-income workers.

“By pairing [an expansion of the credit] with the capital gains increase, I’m making it very clear to the world where my priorities are, which is we should use the tax code to benefit workers,” Delaney said in an interview with The Hill.

Rep. Seth MoultonSeth MoultonHigh-speed rail getting last minute push in Congress Bipartisan lawmakers press Biden to 'immediately' evacuate Afghans who helped US forces Gosar is the Republican that Democrats want to avoid MORE (D-Mass.) recently released a tax plan that included equalizing tax rates for capital gains and ordinary income and ending step-up in basis.

“People rightly view the tax system right now as unfair,” Moulton told The Hill. 

“It’s not fair that Warren Buffett pays lower taxes than his secretary,” he added, referencing the billionaire Berkshire Hathaway CEO.

Former Rep. Beto O’Rourke (D-Texas), former Colorado Gov. John HickenlooperJohn HickenlooperSenator's on-air interview features carpooling colleague waving from back seat DC statehood bill picks up Senate holdout Lobbying world MORE (D) and Sen. Amy KlobucharAmy KlobucharHillicon Valley: Big Tech critic Lina Khan named chair of the FTC | Lawmakers urge Biden to be tough on cyber during summit with Putin | TSA working on additional security regulations following Colonial Pipeline hack Big Tech critic Lina Khan named chair of the FTC Senate confirms Lina Khan to the FTC MORE (D-Minn.), are also among the 2020 candidates who want to tax capital gains and ordinary income at the same rates. O’Rourke and Hickenlooper have also called for ending stepped-up basis, and Hickenlooper wants long-term capital gains to be indexed to inflation while taxed at ordinary income rates. That change would reduce the amount of gains subject to taxes compared to if the gains weren't indexed.

A Democratic president who wants to increase capital gains taxes would have support from a key ally in Congress. Sen. Ron WydenRonald (Ron) Lee WydenFour states emerge as test case for cutting off jobless benefits Democrats face new pressure to raise taxes Hydrogen isn't as clean as it seems MORE (D-Ore.), the top Democrat on the tax-writing Senate Finance Committee, is working on a proposal to tax wealthy people’s investment gains annually — instead of just when investments are sold — at the same rates as wage income.

“To ensure wealthy Americans pay their fair share of taxes, we need to close capital gains loopholes and equalize the tax treatment of wages and wealth,” Wyden said in a statement to The Hill. 

Tax experts say that 2020 Democrats are taking a more full-throated approach to calling for higher capital gains taxes than they typically have in the past. 

Former President Obama proposed raising capital gains rates for high earners to 28 percent, still short of the top ordinary income tax rate. During the 2016 presidential campaign, Democratic nominee Hillary ClintonHillary Diane Rodham ClintonProgressives rave over Harrison's start at DNC Hillary Clinton backs Manhattan DA candidate in first endorsement of year NSA leaker Reality Winner released from federal prison MORE proposed increasing capital gains rates for investments held in the medium term but proposed keeping the top long-term rate the same. And Democrats in the past have also focused much of their talk about capital gains narrowly on ending capital gains tax breaks for the carried interest earned by investment-fund managers.

“This time around, people are willing to take on the much bigger issue,” said Steve Wamhoff, director of federal tax policy for the left-leaning Institute on Taxation and Economic Policy.

Advocates of higher taxes on the rich see the growing consensus from Democratic candidates on capital gains as positive news.

“I’m excited by this development,” said Frank Clemente, executive director of Americans for Tax Fairness Action Fund. “Democratic candidates are recognizing how unfair it is that the richest Americans can pay a tax rate that’s half of what they should be paying.”

The interest from some Democratic presidential candidates in higher capital gains taxes is one of several ideas candidates have proposed to increase taxes on the wealthy. For example, several candidates have proposed increasing the estate tax, and Sen. Elizabeth WarrenElizabeth WarrenProgressives rave over Harrison's start at DNC On The Money: Schumer to trigger reconciliation process on Wednesday | Four states emerge as test case for cutting off jobless benefits Big Tech critic Lina Khan named chair of the FTC MORE (D-Mass.) has floated a wealth tax.

The exact amount of revenue that can be raised from increasing capital gains taxes depends on proposals’ details, tax experts said.

Supporters of taxing capital gains more said that increasing rates alone won’t raise the kind of revenue that Democrats are seeking, since people will hold onto their investments for longer if rates are higher. Experts said that candidates should also call for other changes in addition to higher rates, such as ending step-up in basis and requiring investment gains to be taxed annually.

Democrats’ approach is vastly different from the stance of Republicans, who generally think that capital gains taxes should be cut in order to increase incentives for investment and saving.

President TrumpDonald TrumpKushner lands book deal, slated for release in 2022 Biden moves to undo Trump trade legacy with EU deal Progressives rave over Harrison's start at DNC MORE’s campaign blasted Democrats for proposing tax increases, saying Democrats will need to impose tax hikes to pay for plans such as government-run health care and a Green New Deal.

“Americans are enjoying what may be the strongest economy in history, and raising taxes is the surest way to derail it,” Trump campaign communications director Tim Murtaugh said in a statement. 

Ryan Ellis, president of the conservative Center for a Free Economy, said that if Democrats’ position on capital gains is discussed along with their position on Medicare for All and the Green New Deal, “it becomes part of the argument that they are too radical to be elected.”

Trump has said he’s considering taking executive action to reduce capital gains taxes by indexing capital gains to inflation.

Democrats in Congress fiercely oppose such a move, saying it would increase the deficit and largely benefit the wealthy. They also argue that the administration doesn’t have the authority to index capital gains on its own.

But conservatives back indexing capital gains and are optimistic that the administration will take action before the 2020 election. They argue that indexing capital gains will lead to a surge in sales of investments that will boost the economy and that indexing can benefit family farmers and people selling their homes.

“I think it’s going to be very helpful,” said Americans for Tax Reform President Grover Norquist.