President Biden and Treasury Secretary Janet Yellen have revealed their game plan to fix the racial wealth gaps that have historically made it tough for people of color to get ahead in America.
Wealth Barriers for Minority Communities
Americans – especially those from minority communities – have faced huge barriers to achieving financial security for years.
Wealth Gap Disparities
These barriers have resulted in massive differences in wealth between White families and families of color – despite progress in recent years.
New Treasury Data
New data from the Department of the Treasury shows that while there have been some healthy increases in wealth for Black and Hispanic families, the wealth gap between White families and families of color is still huge.
White, Hispanic, and Black Families
In 2022, the median wealth among White families was $285,000, compared to just $61,600 for Hispanic families and $44,900 for Black families.
Tax Code Issues
One of the main factors making the issue worse is unequal treatment within the tax code.
Preferential Tax Rates
According to Treasury estimates, 92% of tax benefits from preferential rates on capital gains go to White families, leaving minimal benefits for Black and Hispanic families.
Progressive Tax Codes
There are parts of the tax code that are meant to help reduce racial wealth inequality, but currently, they are not doing enough to address the issues.
Earned Income Tax Credit
One example is the Earned Income Tax Credit (EITC), which provides crucial support to low- and moderate-income families, with Black and Hispanic families receiving a larger share of benefits compared to their representation in the population.
Biden’s Tax Reforms
President Biden and Secretary Yellen have proposed significant reforms to the tax system. The aim of these reforms is to generate revenue to support working families, reduce child poverty, and make healthcare more affordable.
Addressing Racial Wealth Inequality
The plan also aims to address the unequal treatment of income from work and wealth, as well as close loopholes that allow wealthy people to avoid paying their fair share of taxes.
Impact on Economic Gaps
Some of Biden’s proposals are:
- Minimum Tax for the Wealthy: People with over $100 million in wealth would be required to pay at least 25% of their total income as taxes. This rule is meant to reduce economic gaps and bring in more tax revenue.
Leveling the Playing Field
- Inheritance Tax: Currently, White families are more likely to receive inheritances than Black or Hispanic families. The proposed budget would limit certain tax exemptions related to inheritances, aiming for a more even playing field.
Equalizing Taxation for Wealthy
- Capital Gains and Dividends: Wealthy people often benefit from lower tax rates on long-term investments. The new plan suggests taxing these gains at regular rates for those earning over $1 million annually. It also proposes treating property transfers differently for tax purposes and introducing a minimum tax for the wealthiest families.
Biden’s Push for Fair Taxation
These plans are designed to tackle the long-standing hurdles that have widened the wealth gap, and the goal is to help lower- and middle-income families build more wealth and gradually narrow the gaps between racial groups.
Biden’s Ambitious Proposal
Outside of narrowing the racial wealth gap, Biden’s administration is also pushing for a host of wealth taxes on the super-wealthy.
Capital Gains Tax Increase
The most noteworthy idea that Biden is pushing for is changing the rate of capital gain tax to the highest it’s ever been – 44.6%. Capital gains tax is the tax you pay when you sell an asset that’s increased in value.
White House Revenue Proposals
In the recently released “General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals,” the White House lays out how they would reach this level of capital gains tax.
Capital Gains Tax Hike
“A separate proposal would first raise the top ordinary rate to 39.6% (…). An additional proposal would increase the net investment income tax rate by 1.2 percentage points above $400,00. (…) Together, the proposals would increase the top marginal rate on long-term capital gains and qualified dividends to 44.6%.”
Who Would Be Affected by the Tax Change?
This tax change would only affect people who earn over $1 million in taxable income and have an investment income of over $400,000.
Financial Industry Response
Despite the tax only affecting a number of high-earning people, there has been considerable outcry from financiers.
Concerns Over Tax Changes
Scott Bishop, co-founder of Presidio Wealth Partners, has come out against the plans, stating, “If Biden actually did raise rates to 44.6%, there would be less trading and therefore less revenue. The bottom line, those with means will change strategies. It will be a populist ‘win’ without generating more revenue to federal coffers, thus increasing and not reducing deficits.”
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.