There is a limit to everything, and that also applies to the tax that the government can levy on individuals. I say this because the new tax laws of Joe Biden are not in favor of the public. He proposed doubling down the tax rates for wealthy individuals who make more than $1 million in capital gains. The increase of this tax rate to 39.6% made people panic, and crypto markets went haywire, with the complete market experiencing a huge dip.
Markets are wobbly!
If you think that only the crypto markets are down, no, that’s not the case. Even the stock market has gone down after this news. But the effect on the crypto market is much more evident. There is a very specific reason for this. Since cryptocurrencies are considered a big risk when investments are considered, it seems futile to invest if almost half of the gains go to the government. Even the top marginal income tax was increased from 37% to 39.6%. This move by the government seems to have taken a big toll on the markets.
Joe Biden’s new tax rates are the highest ever to be paid by any American. An important thing to note here is the fact that this is just a proposal and hasn’t been passed as a law yet. And it is very unlikely that the new proposal will get the support of the other parties in the US. Thomas Hayes, chairman of a hedge fund, says that if the proposal had a chance to pass, we would be down 2000 points. There is a good chance that amendments are made to this proposal, and we reach a mid ground, or the tax changes are rejected altogether. Joe Biden has also promised not to increase taxes for people making under $400k per year.
Big brain time!
Joe Biden has done a very smart thing. He knows that it is very unlikely that the new tax laws will pass. So, he proposed something which can be negotiated and still produce a hefty hike in tax rates. It is estimated that Joe will still be able to get a 29% tax rate. But considering the worst happens, we could see a tax rate of 43.4% with another 3.8% increase that goes to the Affordable care act. Reports also suggest that if the tax rate rises to 43%, then it could surpass 50% in some states. California could see rates of 56.7%, New York could see 68.2%, and even other states could see huge increases.
Considering the average capital gain tax is just 19%, it is disappointing to see such a huge tax jump in the US. If Joe Biden manages to convince the other parties to pass this as a law, then the crypto and stock markets are in danger.
What are your thoughts on the tax rates increase in the US? And do you think that crypto markets that went haywire will recover? Let us know in the comments below. Also, if you found our content informative, do like it and share it with your friends.