The Biden budget would … apply a 3.8% tax to pass-through income of more than $200,000. (Didn’t Mr. Biden promise not to raise taxes on Americans earning less than $400,000?)
Mr. Biden also wants to increase the surtax on earned and unearned income [from 3,8%] to 5% for couples earning more than $450,000 ($400,000 singles). On top of that, he calls for raising the top rate on ordinary income to 39.6% from 37%. This would raise the top effective marginal rate to 44.6%, and it would kick in at $450,000 instead of the current $693,751.
It gets worse. Mr. Biden also wants to apply the top 44.6% rate to capital gains for anyone earning more than $1 million—effectively doubling the current 23.8% tax on capital gains.
Pile on state income taxes—which reach as high as 14.8% in New York City and 13.3% in California—and many Americans would pay nearly 60% of their income to the tax man.
Many people on Social Security already have marginal rates in that neighborhood, and with relatively low income. If you are in the 85% Social Security taxation zone, with regular income in the 12% bracket, and dividend or capital gains income straddling the zero and 15% brackets, your effective marginal rate on regular income is (12 + 15) * 1.85 = 49.95%. In 2026 that jumps to 55.5%. The effective marginal rate on additional LTCG income will be (12 + 15) * 0.85 + 15 = 37.95%, which jumps to 40.5 in 2026.
These are federal only.