- Sen. Ron Wyden, the ranking Democrat on the Senate finance committee, is proposing to raise taxes on capital gains to the same rates as ordinary income.
- Wyden estimates the plan could raise $1.5 trillion to $2 trillion over a decade, and the revenue would be used to shore up the Social Security Trust Fund.
- Republicans and Democrats are at odds over a proposal that would reduce taxes on investment income by allowing investors to adjust the value of their gains for inflation.
A top Senate Democrat unveiled a comprehensive plan on Thursday to revamp the way capital gains are taxed, fueling new debate in Washington over wealth and inequality.
Sen. Ron Wyden, the ranking Democrat on the Senate finance committee, proposed raising taxes on capital gains to the same rates as ordinary income. He also called for investors to pay taxes on their gains every year, rather than when the assets are sold or transferred.
The Oregon senator estimates the plan could raise $1.5 trillion to $2 trillion over a decade, and the revenue would be used to shore up the Social Security Trust Fund.
“It’s time we had a new system where everyone pays what they owe and the wealthiest Americans don’t get away with paying lower average tax rates than their drivers, nannies and household workers,” Wyden wrote in a report released Thursday.
Democrats have long sought to end the preferential tax treatment of capital gains. Currently, income from assets such as stocks, real estate and even art are taxed at 20 percent. The top rate on wage income is 37 percent, a disparity that some policymakers say incentivizes investment over work and exacerbates the wealth gap.
But Wyden’s proposal goes beyond that. He outlines a new system in which capital gains are taxed every year — even if they have not yet been realized. That would force investors to determine the fair value of their tradable assets annually: Gains would be taxed at ordinary income rates, and investors could take a deduction for any losses.
These new provisions would only apply to the wealthy. The new rules kick in once taxpayers earn $1 million in income or hold $10 million in eligible assets for three consecutive years. If they miss both of those thresholds for three straight years, the rules will no longer apply.
In addition, the new system includes special exemptions for family farms, homes and retirement savings. The first $5 million in value of family farms and $2 million of primary and secondary residences would not count toward the $10 million asset threshold. For retirement savings, the first $3 million would be exempted from the threshold and none of the gains in those accounts would be subject to the annual tax.
According to the report, the goal is to protect the most popular savings vehicles for average Americans and ensure taxpayers are not penalized if they receive a one-time windfall.
“The middle class would not pay more tax than they do now,” it states.