Stocks slumped Thursday after a report that President Biden will propose almost doubling capital gains taxes on wealthier investors, the third major tax increase the president is eyeing in his first 100 days.
The Dow Jones Industrial Average fell 321 points, or nearly 1%, after the Bloomberg News service reported that Mr. Biden wants to raise the rate to 39.6% from the current rate of 20% for people earning $1 million or more.
The Nasdaq and S&P 500 indexes also fell nearly 1% each. It was the market’s steepest drop in a month, and stocks had been trading higher before investors learned of the plan.
Coupled with an existing surtax on investment income, the capital gains proposal means that federal tax rates for investors could be as high as 43.4%. In high-tax states such as New York and California, the tax rates could rise as high as 52.2% and 56.7%, respectively.
It would be the highest rate for the tax since it was introduced 108 years ago.
The capital gains tax would add to Mr. Biden’s proposed increase in the corporate rate from 21% to 28% and an income tax hike for individuals earning more than $400,000 annually.
The president is looking for ways to pay for part of his $2.3 trillion infrastructure plan, plus another spending proposal that he will announce next week in a prime-time address to a joint session of Congress. His agenda includes $400 billion in subsidies for home health care and child care and $174 billion for electric vehicles.
Senate Minority Leader Mitch McConnell, Kentucky Republican, said the president’s higher-spending, higher-taxes proposals will deliver “maximum pain for American citizens.”
“Ivy League economists have calculated that the plan’s long-term effects on GDP, capital stocks and hourly wages would all be negative,” Mr. McConnell said on the Senate floor. “Let me say that again: These multiple trillions of dollars would buy us less GDP, less investment and lower wages. It almost takes talent to craft something that disastrous.”
Senate Republicans countered Mr. Biden’s infrastructure plan Thursday with a $568 billion proposal that does not include tax increases.
White House press secretary Jen Psakis said the president’s advisers “are still finalizing” the details of the proposed tax hikes. She did not confirm the proposed increase in capital gains taxes.
“There will be more specifics about … these tax proposals when we lay out the plan,” she said.
“But I will say the president’s calculation is that there is a need to modernize our infrastructure, there is a need to invest in child care, there is a need to invest in early childhood education, and making our kids and the workers of the next generation more competitive, and he should propose a way to pay for it,” she told reporters.
“His view is that [spending] 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. And his view, and the view of our economic team, is that that won’t have a negative impact,” she said.
Investors got word of the proposed capital gains tax increase after the Labor Department issued a better-than-expected report Thursday for first-time claims for unemployment insurance, which totaled 547,000. That was below Wall Street’s expectation of around 603,000.
Ms. Psaki said the unemployment report showed that “our economy is slowly healing.” She also said the four-week average of jobless claims was lower.
“It demonstrates that the administration’s combined efforts are building confidence in our economy and that the president’s approach can both create good-paying jobs and address the climate crisis,” Ms. Psaki said.
On a day that the administration rolled out more details of the president’s climate proposals, she said Mr. Biden is on track to be the first president in history to oversee the creation of 1 million jobs in his first 100 days in office. Ms. Psaki also took the opportunity to slam the policies of President Trump, who cut income and corporate taxes in his first year.
“A lot of these critics are the same people who advocated for the policies of the last administration and the last president, who oversaw the economy that lost more jobs than any president since Herbert Hoover,” she said. “So join us on the journey. We feel ‘clean’ jobs can be good jobs, can create millions of jobs in the future.”
Mr. McConnell said he expects to hear the president tell Americans next week that “this Green New Deal ‘DNA’ would actually create lots of American jobs.”
“But even the most favorable analyses, even the administration’s favorite projections, suggest the president’s plan would be terrible at creating jobs,” Mr. McConnell said. “The rosiest numbers suggest it might cost American taxpayers more than $800,000 for every job it might create.”
⦁ Seth McLaughlin contributed to this report.
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