People are going bananas over Biden's proposal on taxes (to pay for his "infrastructure" program) that would raise long-term capital gains to as much as 42% and change for people who make over a million.
Let's get down to brass tacks on what this proposal really is: It is the elimination of the "capital gains" rate for high-earning people entirely; Obamacare already added the Medicare tax back on capital gains (unearned income) at a relatively-higher income level, so that's not a new tax.
Reality is that nobody who will get hit "as proposed" (on incomes over $1m) is "middle class" and certainly not "poor", no matter where you live. $1m, even in the highest cost areas, is a very nice income indeed and only a couple percent of people get there.
This would essentially treat all such income as ordinary income, thus be subject to the same tax rate as ordinary income. Note that for ordinary income there is no cap for Medicare either; you pay both halves, whether you do so directly if self-employed or via the split if on a W2, so it's not a higher rate than ordinary income -- it is the same rate.
Why do I call this "accidentally smart"?
Because I'm sure that Biden did not do this intentionally. But by doing it he is removing one of the perversities that has been abused for the last 20 years; specifically, "executive compensation" (which is pay for a job, folks) that has been avoided from W2 income.
This should have never been possible but of course when lobbyists write the tax code...
So let's say you're a director or officer of some company. You've been progressively ripping off the shareholders for years, with the company buying back stock and giving it to you either via restricted stock or options. This used to be illegal before the SEC changed the rules around 1990 and it never should have been made legal, as I've pointed out, because it is inevitably robbery from the shareholders of their ownership for the benefit of the officers and directors.
What's worse is that these people then turn around and exploit the tax code since they had the stock for more than a year and only pay 20% tax on the gains instead of their full marginal tax rate (which is usually the highest, as most or all of them are in the top bracket.) But the grant was in fact payment in exchange for services rendered.
Yeah, I get the argument about "well, it appreciated after the grant date." So what? It was still payment for services rendered and if I got an escalating pay-out for wages that were delivered to me at some future date since as a person I am on cash basis accounting with the IRS I would get that on a W2 on the date it was delivered in cash to me and have to pay my full marginal tax rate on it.
This proposal in fact levels the playing field with the guy who gets a big fat bonus but isn't an officer or director, and the bonus is in cash. He gets the nasty bracket hit from that (if it's enough to move his bracket) and he gets the FICA hit (if under the cap) and he gets hit with the Medicare tax too.
All this proposal does is put those who are in that group in the same situation as the common dude who gets a big fat bonus. Presumably the bonus is performance-based, whether individually or collectively for the company as a whole. Why should the executive, the officer or director, not have to pay income tax on the same basis?
If Biden had a damned clue what he'd also do is change the tax code for corporations so dividends are above the line deductible on an 1120 for "C" Corporations. This would eliminate the penalty on dividends through double-taxation; they would be taxed once, as ordinary income to the recipient. That's appropriate and would further remove the incentive to******the common shareholder that has existed for the last 30 years.
I can think Biden is a slug and jackass (and I do) but irrespective of what I think of him as a politician or person when you're right you're right, and on this proposal he's right.