By Jarrett Renshaw and Trevor Hunnicutt
WASHINGTON (Reuters) -President Joe Biden will roll out a plan to raise taxes on the wealthiest Americans and their investments to fund about $1 trillion in childcare, universal pre-kindergarten education and paid leave for workers, sources familiar with the proposal said.
The plan, part of the White House’s push for a sweeping overhaul of the U.S. tax system to make the rich and big companies pay more, calls for increasing the top marginal income tax rate to 39.6% from 37% and nearly doubling taxes on capital gains to 39.6% for people earning more than $1 million, according to the sources this week.
That would be the highest tax rate on capital gains taxes, which are mostly paid by the top 1% of Americans, since the tax was introduced in 1913.
News of the proposal triggered sharp declines on Wall Street, with the benchmark down 1% in early afternoon, its steepest drop in more than a month.
Any such hike would need to go through Congress, where Biden’s Democratic Party holds narrow majorities and is unlikely to win support from Republicans.
“If it had a chance of passing, we’d be down 2,000 points,” said Thomas Hayes, chairman and managing member at hedge fund Great Hill Capital LLC, referring to stock market indexes.
Sources said details would be released next week before Biden’s address to Congress. Tax details related to the plan, which has been in the works for months, were first reported by the New York Times on Thursday morning.
White House press secretary Jen Psaki said the president would discuss his “American Families Plan” during his speech to Congress next Wednesday, but declined to comment on any details.
She said the administration had not yet finalized funding plans, but stressed Biden’s determination to make the wealthy and companies pay for new programs.
“His view is that that should be on the backs – that can be on the backs of the wealthiest Americans who can afford it and corporations and businesses who can afford it,” Psaki said.
She said Biden and his economic team did not believe the measures would have a negative impact on investment in the United States.
Yields on Treasuries, which move in the opposite direction to their price, fell to the day’s low.
Biden’s new plan, likely to cost about $1 trillion, comes after a $2.3 trillion jobs and infrastructure proposal that has already run into stiff opposition from Republicans. They generally support funding infrastructure projects but oppose Biden’s inclusion of priorities like expanding eldercare and asking corporate America to pay the tab.
Tax hikes on the wealthy could harden Republicans’ resistance against Biden’s latest “human” infrastructure plan, forcing Democrats to consider pushing it – or least some of the measures – through Congress using a party-line budget vote known as reconciliation.
Senator Joe Manchin, a moderate Democrat from West Virginia who wields outsize power due to the party’s slim majority, said recently said he was wary of expanding the use of reconciliation.
Wealthy Americans could face an overall capital gains tax rate of 43.4% including the 3.8% net investment tax on individuals with income of $200,000 or more ($250,000 married filing jointly). The latter helps fund the Affordable Care Act, popularly known as Obamacare.
Currently, those earning more than $200,000 pay an overall rate of about 23.8% including the Obamacare net investment tax instituted as part of that law.