President Joe Biden’s recent proposal to increase the capital gains tax rate to a historic high of 44.6% has sparked widespread discussions and concerns among investors, particularly those in the cryptocurrency space.
However, upon closer examination, it appears that the impact of this proposed tax hike on the average crypto investor may be minimal, if not entirely negligible.
TLDR
President Biden’s proposal to increase the capital gains tax rate to 44.6% for certain people is likely a “nothing burger” for the average crypto investor.
The 44.6% figure would only come into effect if two separate proposals were approved, targeting high-income earners with over $1 million in taxable income and $400,000 in investment income.
The average income earner, including most crypto investors, will not be affected by this proposal, as it targets only the highest earners.
Biden’s Federal Budget proposal also included a 25% tax on unrealized gains, but this would only apply to individuals with more than $100 million in net assets.
Some experts suggest that Biden’s tax proposals could be seen as political posturing designed to appeal to a lower-income voter base.
The 44.6% figure, which has been making headlines and causing a stir on social media, is not a blanket rate that would apply to all capital gains. Instead, it is the result of two separate proposals outlined in the Biden administration’s budget plan for the 2025 fiscal year.
The first proposal seeks to raise the top ordinary tax rate to 39.6%, while the second aims to increase the net investment income tax rate by 1.2 percentage points for those earning above $400,000.
When combined, these proposals would result in a top marginal rate of 44.6% on long-term capital gains and qualified dividends.
However, it is crucial to note that this proposed rate would only affect a small segment of the population—specifically, those with taxable income exceeding $1 million and investment income above $400,000.
For the vast majority of crypto investors, whose annual incomes fall well below these thresholds, the proposed changes would likely have little to no impact on their tax obligations.
Matthew Walrath, founder of Crypto Tax Made Easy, echoed this sentiment, stating that for
“99.9% of people, it’s a big, fat nothing burger.”
He emphasized that the proposed tax hike is essentially just that—a proposal—and that it would not affect the average crypto user even if it were to be signed into law.
Similarly, pseudonymous crypto accountant SqueezeTaxes described the backlash against the proposal as a “headline catfish,” noting that Biden’s tax proposals are targeting high-income earners, not the average investor.
3/ How does Boden propose to do this?
The TLDR is this:
– Bring back 39.6% as the highest tax bracket
– Increase NIIT to 5%
– High-income earners over $1 million will pay the ordinary tax rate on long-term capital gains
That’s where the 44.6% comes from.
Lets go deeper! pic.twitter.com/5L4XAVi3af
— Squeeze ???????????????? (@SqueezeTaxes) April 24, 2024
According to data from crypto payment firm TripleA, the annual income for the average crypto investor internationally stands at around $25,000, far below the thresholds outlined in the proposed tax changes.
In addition to the capital gains tax proposal, Biden’s Federal Budget also includes a 25% tax on unrealized gains for ultra-high-net-worth individuals.
While this proposal has been met with some criticism, it is important to note that it would only apply to individual taxpayers with more than $100 million in net assets, as reported by tax analysts at Grant Thornton.
Once again, this proposal targets a very small, wealthy subset of the population and is unlikely to impact the average crypto investor.
Some experts, like Walrath, suggest that Biden’s tax proposals could be seen as a form of political posturing, designed to appeal to a lower-income voter base.
By targeting the wealthy and positioning them as an “enemy,” the Democratic Party may be attempting to garner support from those who feel that the current tax system favors the rich.
Despite the limited impact on the average crypto investor, the proposed tax changes have sparked a broader discussion about the potential for high taxes to drive investors towards cryptocurrencies as a means of achieving economic freedom.
While the laws surrounding crypto tax reporting are still evolving, the current tax rates for digital assets remain lower than the proposed 44.6% capital gains tax rate.
The post Biden’s 44.6% Capital Gains Tax: A Political Play or Genuine Effort to Level the Playing Field? appeared first on Blockonomi.
