Biden’s Capital Gains Tax Hike Proposal and Potential Economic Impact

President Joe Biden has proposed increasing the top marginal rate on long-term capital gains and qualified dividends from 23.8% to 44.6%. This change is part of Biden’s 2025 budget plan. Notably, eleven states, including New York, California, and Hawaii, would see combined federal and state capital gains taxes exceed 50%.

Ted Jenkin, CEO of oXYGen Financial, expressed concerns that this hike, coupled with the expiration of the Trump-era Tax Cuts and Jobs Act (TCJA) at the end of 2025, could lead to significant economic repercussions. Jenkin predicts that many Americans may sell their appreciated assets before the new rates take effect, potentially triggering market instability reminiscent of significant sell-offs in past financial crises.

As of 2022, 58% of US households owned stocks, an increase from 53% in 2019, according to Federal Reserve data. However, stock ownership remains heavily skewed towards wealthier individuals, with the top 10% owning 93% of stock market wealth. Biden’s proposal also includes changes to how inherited assets are taxed, treating them as realized gains upon inheritance.

For Biden’s proposals to be implemented, he must win the 2024 election, and the final 2025 budget must be approved.

Trump’s Stance on Electric Vehicles and Future Market Dynamics

Former President Donald Trump has declared his opposition to electric vehicles (EVs) and promised to dismantle Biden’s policies promoting EV adoption if re-elected. Trump has even suggested imposing a 100% tariff on EVs imported from Mexico. Despite Trump’s stance, analysts believe that the US EV market might continue to grow, driven by increasing consumer adoption and manufacturing investments.

In 2023, 1.2 million Americans purchased EVs, representing 7.6% of new car sales. Projections indicate that this figure may rise to 10% in 2024. The Biden administration’s climate policy aims for over 50% of new passenger vehicles to be all-electric by 2032, supported by tax incentives and tariffs on EVs from China.

Should Trump gain office and attempt to reverse these policies, the transition to EVs might slow down, potentially impacting climate change efforts. However, the auto industry may resist a complete reversal due to the significant investments already made in EV infrastructure and production.

Moreover, private investments and state initiatives are likely to continue supporting the expansion of EV infrastructure, even if federal support diminishes. Some Republican-led states have shown substantial growth in EV adoption and infrastructure investment, which might influence the future policy landscape.