Congressman Andy Barr (R-Ky.) has reintroduced H.R. 3265, the “Middle Class Savings Act.” This bill would reduce taxes by updating the long-term capital gains tax brackets to align with income tax brackets so that Americans are better able to invest and save. All lawmakers should co-sponsor and support this piece of legislation.
Rep. Barr’s legislation draws an important contrast to the damaging policies being pushed by President Biden, including his proposal to double the capital gains tax rate. Biden has proposed raising the top rate from 23.8 percent to 43.4 percent, which includes a 39.6 percent long-term capital gains rate and the 3.8 percent Obamacare net investment income tax. After state taxes, the capital gains tax would be 48.8 percent and would exceed 50 percent in some states like California and New York.
Biden’s capital gains tax hike would make the United States uncompetitive, would severely harm investment and access to capital for startups, and could actually reduce federal revenues.
Capital gains taxes are imposed when a taxpayer sells an asset, such as stocks, bonds, or real estate. The tax is imposed on the difference between the purchase price, or cost basis, and the sale price.
Capital gains taxes create double taxation on corporate income as it is an additional layer of tax on business income. First, businesses pay the corporate income tax on their earnings. Second, the investor pays the capital gains tax on dividends received or stocks when they are sold. This double taxation discourages savings, suppresses productivity, and discourages investment. It acts as a barrier to job creation, wage growth, and economic growth.
The capital gains tax also creates a “lock-in” effect. Because the tax only applies when a taxpayer sells the asset, a high capital gains rate discourages individuals from selling in order to delay having to pay the tax, thus also discouraging individuals from making new investments. This will disproportionately harm entrepreneurs and startup businesses across the country that already must fight tooth and nail for access to new capital. Under Biden’s plan, these businesses could be deprived of the capital needed to get their company off the ground.
Rather than recklessly raising taxes on the American people, Rep. Barr’s legislation would reduce taxes for American families. This would build on the success of the Tax Cuts and Jobs Act led to significant economic growth and tax relief for Americans at every income level. While the Coronavirus pandemic put an end to this growth, the policies enacted through the TCJA resulted in 50-year low unemployment and saw median household income grow by 6.8 percent in 2019. However, the TCJA did not change the long-term capital gains tax brackets to align with the new, lower income tax brackets.
“With the fragile state of our economy and this Administration’s tax and spend policies disrupting what was initially a strong economic recovery, middle-class families need the ability to save now more than ever,” said Congressman Barr. “That is why I am proposing this bill, to give tax relief to millions of Americans to build savings and wealth for their families.”
Unlike President Biden, Representative Barr understands the need for increased investment as the economy is trying to recover from the coronavirus pandemic.
The Middle Class Savings Act will make it easier for American families to invest and save, thereby growing the economy. By aligning the long-term capital-gains tax rates to the new income tax rates, families will see further tax relief and will be better equipped to save and invest in the US economy.