Biden's Budget Proposal Raises Capital Gains Tax to 44.6%

Proposed Rate Increase Combined with State Taxes Could Reach 50%

The Affordable Care Act and Medicare Tax are Contributing Factors

President Biden's proposed FY 2025 budget includes a significant increase in the top capital gains tax rate to 44.6%. This rate increase, coupled with state taxes, could push the effective capital gains tax rate to over 50% for some investors.

The increase in the capital gains tax rate is part of a larger effort to fund the Affordable Care Act and increase funding for Medicare. The 3.8% Net Investment Income Tax (NIIT) and the additional Medicare tax contribute to the overall 44.6% capital gains tax rate.

According to a footnote in the General Explanations of the Administration's FY 2025 Revenue Proposals, the proposed rate increase would apply to investors who make at least $1 million in capital gains in a given year.

The proposed budget has yet to be approved by Congress, and it is unclear whether the capital gains tax rate increase will ultimately be included in the final budget.