US economy

How Democrats Would Raise Taxes on the Rich


More than one-fifth of all income for the top 1 percent of earners in America comes from capital gains, according to estimates by the Congressional Budget Office.

“It’s really not an issue of billionaires sit on piles of cash, of idle money that the government should take,” said Gabriel Zucman, an economist at the University of California, Berkeley. “It’s really an issue of you have people who have capacity to pay a lot of taxes” — and the way to get them to pay more is by taxing capital.

The need for more tax revenue is clear to many Democrats who want to fund government programs meant to help the poor and the middle class, including universal child care, paid leave, early-childhood education and free college.

But the United States taxes income from capital gains at a lower rate than it taxes income from jobs. Orthodox free-market economists argue that comparatively lower taxes on capital gains stimulate investment, and conservatives warn that raising those taxes would hamper economic growth.

“Right now, one of the biggest problems we have is low investment even with low interest rates,” said Karl Smith, vice president for federal policy at the Tax Foundation in Washington, a think tank that tends to support lower taxes on businesses and capital gains. “In general, taxing capital or productive assets is going to make that problem even worse.”

Mr. Biden and Mr. Sanders, along with Ms. Warren, favor raising the tax rate for capital gains, such as profit on the sale of a stock or a business, to the same rate as taxes on labor income. Mr. Biden’s increases would be smaller, and apply to fewer Americans, than Mr. Sanders’s or Ms. Warren’s.

Currently, married taxpayers earning up to just under $80,000 a year pay no taxes on capital gains from assets held longer than a year. The top rate, for those earning just under $500,000 a year, is 23.8 percent, compared with a top rate of 37 percent for labor income.



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