Galt's Gulch was the secluded community of innovators and industrialists participating in the “great strike” depicted in Ayn Rand's “Atlas Shrugged.” They fled to escape a society that stifled their innovation, burdened them with excessive regulations, and confiscated the fruits of their labor. President Joe Biden would do well to note what could happen when society pushes its most productive members too far—they may choose to withdraw their talents altogether.
Biden's latest budget proposal, which aims to hike the capital gains tax rate to an unprecedented 44.6%, threatens to do just that. The proposed figure has sent shivers down the spines of investors, small business owners, and the economically literate alike. What is particularly galling about this proposal is not just the sheer audacity of the higher tax rate but the fundamentally flawed economic rationale underpinning it.
First, let’s dissect Biden's proposal. The increase includes a bump in the top individual income tax rate from 37% to 39.6%, combined with an expansion of the Net Investment Income Tax from 3.8% to 5%. In practical terms, long-term capital gains and qualified dividends above $1 million will be taxed at ordinary income rates, effectively raising the top federal tax rate on these earnings to 44.6%. When combined with state taxes, the total could soar to nearly 60% in high-tax states like California and New York.
