President Joe Biden‘s proposal to elevate the capital gains tax to a historic high of 44.6% for high earners has stirred significant debate. However, for the vast majority of cryptocurrency investors, this potential increase might not be as impactful as feared.
The proposal includes a significant tax rate increase for individuals earning over $1 million annually, potentially raising their long-term capital gains tax to 44.6%. This rate results from a proposal combining a hike in the top ordinary tax rate and an increase in the investment income tax rate. Although this has caught the attention of social media and investors, the practical effects on the average cryptocurrency investor might be minimal.
Analysis of the Tax Impact on Average Crypto Investors
According to Matthew Walrath, founder of Crypto Tax Made Easy, the tax increase targets a tiny fraction of high earners and is unlikely to affect the broader crypto investor base. “For 99.9% of people, it’s a big, fat nothing burger,” Walrath commented, noting the proposal’s limited scope.
Despite being public for over a month, the proposal gained traction on social media, often misinterpreted as a broader tax increase. The narrative surrounding these changes has been amplified by sensational headlines, yet the reality remains that only ultra-high-net-worth individuals are targeted.
Clarification from Industry Experts
Pseudonymous crypto accountant SqueezeTaxes and other tax professionals have clarified that these proposals aim to adjust tax rates for very high-income groups, not affecting the average American or crypto user. Most cryptocurrency investors, especially those earning around the global average annual income of $25,000, will find these changes irrelevant to their financial activities.
Another aspect of Biden’s tax proposal is the introduction of a 25% tax on unrealized gains, applicable only to individuals with assets over $100 million. This measure has been described as extreme by some commentators but, again, affects a minimal portion of the population.
Political Context and Implications
Walrath suggests that these tax proposals might serve more as a political statement than a fiscal strategy, intended to resonate with Biden’s voter base by positioning the administration against perceived wealth inequality. This tactic aligns with the Democratic Party’s broader strategy to appeal to lower-income, less-educated demographics by highlighting wealth disparities.
While Biden’s proposed tax changes are poised to set records for capital gains taxation, their actual impact on the average cryptocurrency investor will likely be negligible. These proposals reflect targeted fiscal policies aimed at the wealthiest, with minimal repercussions for the broader crypto market. Investors should stay informed and consult with tax professionals to understand better how these potential changes could affect their portfolios and investment strategies.
Featured image credit: Roland Amoussou via LinkedIn