Biden’s proposed capital gains tax rise will hit only richest 0.3%
Amid the United States President Joe Biden's capital gains tax rise proposal last week, Cryptocurrency market has seen a major sell-off.
Under Biden’s proposal, the capital gains tax rate for wealthy individuals will rise to 39.6% from the current base rate of 20%. For those earning $1 million or more, the new top rate will be accompanied by an existing surtax, bringing the U.S. capital gains and dividends tax rate to 43.4%.
Following the announcement, both crypto and the U.S. stock market experienced major sell-offs amid growing speculation and FUD (fear, uncertainty and doubt) that investors would sell stocks before the higher tax rate is adopted. Bitcoin also has been through selling pressure, leading to heavy price dropping below the $50,000 support level on Friday, touching a record low of $47,500. The U.S. stock market also saw major losses Thursday before quickly bouncing back.
Investors including billionaire VC and prominent crypto advocate, Tim Draper criticized the new tax plan arguing that a 43.4% capital gains tax “might kill the golden goose that is America,” with California taxes potentially landing at 56.4%, which “spells death to job creation.” According to him, Bitcoin could possibly become a haven for concerned investors. “The antidote for oppressive government and runaway taxes is....Bitcoin,” Draper wrote in a tweet Thursday.
The antidote for oppressive government and runaway taxes is....#Bitcoin.— Tim Draper (@TimDraper) April 22, 2021
Brett Cotler, an attorney in taxation and blockchain practices at law firm Seward & Kissel, said, “Many crypto traders trade with such high frequency or turnover that a predominant portion of their trading gains are short-term capital gains, taxed at the higher ordinary income tax rates. Any change in capital gains taxation should not affect these activities.”
Cotler further said that crypto investors that hold for over more than one year and who would be subject to the higher capital gains tax rates could be affected. He suggested that there are many ways that taxpayers can mitigate their capital gains tax including crypto investment through tax advantaged accounts like retirement accounts, health savings accounts and others. Startup founders could also benefit by structuring their businesses as “qualified small business corporations”, Cotler stated.