Every so often we start to think, especially after some asinine pronouncement from BlackRock CEO Larry Fink on Diversity, Equity and Inclusion or Green Energy, that maybe
killing off Wall Street isn’t such a bad idea – then we remember that’s where a lot of our retirement money lives, and we get a grip.
But our musings about doing away with Wall Street, or at least its less patriotic denizens, appears to have gained an ally in President Joe Biden.
As our friend Stephen Moore explained in a recent issue of his must-read Unleash Prosperity Hotline (Click here to subscribe–it's free.) his Committee to Unleash Prosperity analysis of the Biden soak the rich tax plan finds that tax rates on investment income - such as stock gains - could rise to the preposterous level of more than 80% on millionaire investors.
Millionaire investors, particularly the Leftwing New York kind, aren’t very popular, so confiscating 80% of their stock gains kind of sounds like a good payback for their support of Joe Biden and other progressive Democrats, except the plan that whacks them has a trickledown effect on smaller investors and working Joes and Janes.
As Steve explained in an op-ed for the New York Post, investment is crucial to future prosperity and raises American workers’ wages.
The private sector accounts for about 80% of all investment in America, and each year private investors put about $4.5 trillion at risk to advance new companies and technologies.
Here’s the example Mr. Moore outlined in the New York Post:
Let’s say you’re a multimillionaire who decides to invest $1 million in a startup biomedical-research corporation that has a promising treatment for Parkinson’s.
Remember, this is at-risk capital. An investor is more likely to lose the $1 million than to score the hoped-for big return.
But let’s assume you pick a winner and over 10 years have made $1 million in paper profits.
The first thing that happens, before you see any profits, is the firm pays a corporate tax on them.
Biden wants to raise that to 28% after all allowable expenses. The company pays $280,000 to the feds, and that $1 million in profits shrinks to $720,000.
Now let’s say you sell the stock. Biden wants to raise the capital-gains tax to roughly 44.6% for millionaires from 23.8% today.
He would tax capital gains at the personal-income-tax rate of 39.6% and for millionaires add a 5% “net-investment income tax” on top of that.
So you pay roughly $320,000 in cap-gains tax. Remember, if you lost money on other stocks you own, you’re limited in how much you can deduct from the gain you made on this company.
The taxman has set up a rigged system: Heads you win, so the government gets 42% of your profits; tails you lose all your money.
Adding up the corporate tax and the capital-gains tax on the $1 million profit, your effective tax owed is just a shade over $600,000, or a 60% tax rate.
The tax is roughly similar if you take your profits through dividends or if you hold on to the stock — because Biden wants to tax gains on stock whether you have sold it or not.
But wait. That isn’t really the total tax because, remember, capital gains are not indexed for inflation.
Over the last year inflation hit 6%, but let’s say Biden and the Federal Reserve get the inflation rate down to 3% over the next decade.
Over the 10 years you’ve held the stock, your after-inflation return isn’t $1 million, it’s $774,000.
So you are really paying a tax of $600,000 on $774,000 of after-inflation income — for a tax rate of 77%.
This means for every $4 of profits you earned from investing in the company, $3 goes to the tax collector, and you keep $1.
That’s close to confiscatory and even higher than the 70% tax rate Sen. Bernie Sanders has been longing for, noted Mr. Moore.
The combination of all these taxes, plus state taxes on income and dividends could mean that the government would snatch away $4 out $5 of gains made on investments of more than $1 million.
But wait – there’s more. Biden also wants to impose a first-ever tax on unrealized capital gains, meaning he would tax gains due solely to “Bidenflation,” thus requiring investors to come up with the cash to pay the tax on investments they hadn’t yet turned into cash by selling them. Where would the cash to pay the tax come from? That’s the taxpayer’s problem, not Joe Biden’s problem.
That’s pretty much the same scheme British socialist governments used to break up the estates of wealthy landowners and put them in the hands of the government, by the way.
Who would invest with a return that low? What rich person would put money at risk in a new enterprise - which might easily fail - with tax penalties this high. No one concluded Steve Moore and the rich would be better off buying a yacht and sailing away.
The Capitol Switchboard is (202-224-3121), call today and tell your Senators and Representative that Biden’s tax-raising scheme will kill Wall Street and along with it American business growth and the savings and retirement plans of millions of Americans.
Joe Biden tax plan
Capital gains tax
tax unrealized gains
BlackRock CEO Larry Fink
Diversity, Equity and Inclusion
Wall Street investments