America has long been known as the home of innovation. Many of the most successful companies the world has ever seen were born here. In the modern era, the seven largest technology companies in the world were all founded in America. America is a beacon of entrepreneurship – whether the desires of the hopeful entrepreneur are to establish and maintain a profitable small business, or to create a multinational juggernaut, all of this and more is possible in the United States – or at least it used to be.
Joe Biden just declared war on our nation’s great entrepreneurial spirit.
His 2025 budget calls for hiking the top capital gains rate from 28 percent to 44.6 percent. As Americans for Tax Reform laid out, "The proposed Biden top capital gains tax rate is more than twice as high as China’s rate. China’s capital gains tax rate is 20%.” Do we really want to be a nation with a higher capital gains tax rate than China?
Many were left scratching their heads after this proposal was revealed, especially given that research shows that increasing the capital gains tax destroys innovation and the reverse is also true. A 2019 study found that reducing the capital gains tax significantly increased "the amount of investment in start-up firms." Economist Allen Sinai found that "capital gains tax reduction increases savings, capital spending and capital formation, economic growth, jobs, productivity and potential output." If reductions in the capital gains tax rates have proven to increase the growth of the economy, why would Biden seek to do the opposite?
Our economy follows incentive structures. If you disincentivize growth, you can expect a slowdown. If you minimize the taxation penalties for those looking to invest in our economy, you can expect growth as a result.
Capital gains taxes are a form of double taxation (and you could even argue they’re a form of triple taxation). You’ve already paid income tax before you’ve made your investment. Then there is a built-in inflation tax when you sell your investment off years down the road. Taxing the gains made on an investment creates yet another hurdle that investors have to put up with.
Let’s say you invested $10,000 in company X in 1994 and you sell your shares for $30,000 today for a return of $20,000. Well, the dollar has sharply depreciated since 1994. In fact, the value of a dollar has halved in the past 30 years.
So, your return is effectively only $10,000, and yet Joe Biden wants to take 44 percent of the $20,000 realized profit. Many are beginning to ask themselves, why should I take the risk to invest in that environment?
A higher capital gains tax will mean fewer investors. Fewer investors will mean less innovation and fewer great American companies.
Biden and his allies justify this tax increase as a way to reduce wealth inequality, but his own administration notes that there is actually a deeper racial motivation to the proposal.
The Biden Treasury Department wrote that the current capital gains tax rate “disproportionately benefit[s] White taxpayers, who receive the overwhelming majority of the benefits of the reduced rates.”
Racial resentment as a guiding principle for tax policy is not a recipe for success and utilizing the economy as a weapon to enforce your social goals is a dangerous game.
Given Biden’s stated goal is to politicize the tax structure in order to punish those who he believes are a threat to his power, it should come as no surprise that there’s an even crazier tax proposal hidden in this budget plan. The Biden administration also wants to tax “unrealized gains.” Taxing unrealized capital gains means you penalize individuals for momentarily successful investments regardless of if they’d sold them or not. In other words, Americans would owe taxes on earnings they haven’t actually received yet as realized income.
Biden will defend himself by noting that his proposed 25 percent tax on unrealized gains will only be imposed on individuals with more than $100 million in assets, but the problem is – with policies like these, why would anyone desire to accumulate that level of wealth any longer in this proposed environment?
If Joe Biden’s policies are enacted, expect American billionaires to flee and our economy to suffer, as not only will we lose Elon Musk, Jeff Bezos, Mark Zuckerberg, Larry Page, Larry Ellison, and many more, but importantly we’ll lose the great entrepreneurs of the future.
Brave business owners risk everything with the hopes that they will be able to reap the rewards of their risk as they increasingly provide value to their customers. Joe Biden wants to eradicate the chances that they’ll ever be able to.
As Federal Reserve Chairman Alan Greenspan noted in 1997 “while all taxes impede economic growth to one extent or another, the capital gains tax is at the far end of the scale.”
A serious nation would promote entrepreneurship, innovation, and growth at all costs. The Biden administration has made it abundantly clear he has no such desire. We as citizens of this great country can only hope that Biden is out of office so his goals are never realized.