Capital Gains Shouldn’t Apply to All
Source: Washington Business Journal
Not all capital gains are created equally, and the Biden administration must grapple with this fact. At a time when, according to the Pew Research Center, half of U.S. adults who lost a job due to the coronavirus outbreak are still unemployed, it’s the time to take a progressive approach to capital gains taxation.
Capital gains policy has always, at least theoretically, been animated by progressive impulses — that is, the society wide desire to incentivize job growth and economic development. But, as with many things in our tangled tax code, that sensible approach animating policy has been lost.
During the campaign, President Joe Biden pledged to raise long-term capital gains and dividend taxes of all Americans earning more than $1 million a year from 20% to 39.6%. The policy position sent a shudder not just through Wall Street but also through Main Street. Now, as the Biden team plans to govern, they must refine their capital gains tax policy. That will require making a crucial distinction between those economic actors who sit on luxury couches and trade stocks, achieving financial gains, and those who sit at their kitchen tables, launch small businesses and achieve job creation.
I work with founder-owners in the midmarket every day who have been raising their businesses as long as they’ve been raising their children. I am constantly amazed at the diversity of these entrepreneurs. They are women and men, husband-and-wife teams, immigrants and veterans, from every corner of America and from every race and religion. These true heroes of capitalism sat at their kitchen table, drew up plans, took out personal loans, worried at night about their first hires, served customers, paid taxes, invested in their business to grow it, hired more people who paid their taxes, and ended up with a valuable, sellable business.
According to the National Center for the Middle Market at Ohio State University, these enterprising souls are still our national job creation engine — they literally create two-thirds of all American jobs. With this fact in mind, the Biden administration should tax small business owners like the ones I work with very differently than people who obtain capital gains by buying and selling stocks or other arm’s-length financial transactions. These small business owners should be taxed at a lower rate because the risks they took were significant risks, and the results they achieved were significant as well: job creation, which benefits the entire American economy.
Affluent Americans, regardless of their political party, privately rejoiced when the Trump administration reduced corporate taxes from a maximum rate of 35% to an unprecedented flat rate of just 21% as part of the Tax Cuts and Jobs Act. Perhaps as an antidote to this giveaway to the rich, Biden’s finance team sent a clear signal that it was seeking an equitable distribution of the tax burden.
Now the campaign is over. A president has been selected. Biden’s turn at watch began Jan. 20. On the top of the to-do pile is job growth. As a result, the new administration should draw up a more refined capital gains tax policy, one that distinguishes small business owners from other affluent Americans and rewards them for fueling American job creation.
Read CEO Sharon Heaton’s full article here.