Over the past week, Joe Biden has announced that he intends to raise the US capital gains tax rate so that wealthier Americans pay for items on their political agenda. The president is proposing to increase the highest tax rate on long-term capital gains from 20% to 39.6% for those who earn more than 1 million.
A study recently published by the Tax Foundation looked in detail at how the new federal tax rates could work at the state level. It shows that rates would be even higher in many U.S. states due to state and local capital gains taxes, leading to a combined average rate of 48% compared to the current law's 29%.
Among the programs that can be financed by raising taxes are the plan to fight poverty, reduce daycare costs for families, make kindergarten and community college free for everyone, and establish a national paid leave program.
If approved, Biden's plan would be the highest tax rate on investment gains since 1920.
Capital gains tax is the tax you pay when disposing of financial assets, such as crypto assets and stocks. The tax rate is applied to the profits obtained (the difference between the sale price and how much was paid for the currency) when withdrawing or exchanging one crypto for another.
Of course, any increase in capital gains taxes would have a significant impact on Bitcoin investors, who have seen the value of their assets increase exponentially in recent years.
While traditional investors can avoid raising taxes for a while, bitcoiners are in a unique position. They may see Biden's potential plan as the ultimate incentive not to sell their Bitcoin and make no capital gains.
In the US, short-term capital gains occur when you sell a crypto after holding it for less than 12 months. Taxation for these gains varies between 10% and 37%.
Long-term capital gains, on the other hand, occur when you sell a crypto after holding it for more than 12 months. These gains are taxed from 0% to 15% or, at the highest rate, 20%, depending on the level of income.
It should be noted that the details of the new rules are still unknown, but such a high capital gains tax rate would influence taxpayers' decisions as to whether to sell their assets and what state they would choose to live in. If enough taxpayers decide not to make a profit and avoid the new tax rate, Biden's decision could backfire, resulting in less federal revenue.
