The Biden administration’s proposal to raise the top tax rate on capital gains and qualified dividends would push the combined federal‑state burden for the wealthiest Americans to nearly 50 %, making it one of the highest rates for investment income among developed nations.
Proposed rates and total burden
- Federal top rate: 39.6 % on long‑term capital gains and qualified dividends.
- Net Investment Income Tax: an additional 3.8 % surtax.
- State taxes: the average state levy adds roughly 5–6 % for high‑income filers.
- Combined effect: the Tax Foundation estimates the total effective rate would approach 48–49 % for the top 0.3 % of earners.
How the United States compares internationally
| Country (developed) | Capital gains tax | Dividend tax |
|---|---|---|
| United States (proposed) | ~48–49 % (combined) | ~48–49 % (combined) |
| Ireland | 0 % on capital gains, 51 % on dividends | |
| Sweden, Netherlands, Norway, France, Finland, Denmark, Chile | lower than 48 % on both categories (exact rates vary) | |
| Belgium, Czech Republic, South Korea, Luxembourg, New Zealand, Slovakia, Slovenia, Switzerland, Turkey | 0 % capital gains under qualifying conditions | |
| Mexico, Colombia | No capital gains tax for many assets |
The United States would become the highest jurisdiction for capital‑gains taxation, while only Ireland exceeds it on dividend taxation.
Who would be affected
- The top 0.3 % of U.S. taxpayers – roughly one out of every 330 people – would face the new rate.
- The threshold for inclusion is relatively low; a single business sale of a few million dollars could push a taxpayer into the top bracket for that year.
Practical considerations for high‑net‑worth individuals
- Timing of asset sales – Accelerating or deferring sales before the law takes effect can avoid the higher rate.
- Relocation to low‑tax jurisdictions –
- Puerto Rico offers a 0 % capital‑gains rate for bona‑fide residents under Acts 20/22 (now part of the “Puerto Rico Incentives”).
- Moving requires establishing residency, which can take months; it cannot be done retroactively after a sale.
- Second passports and expatriation – Obtaining citizenship or residency in countries with favorable tax regimes (e.g., Portugal, Malta, Caribbean investment‑citizenship programs) can provide long‑term tax planning flexibility.
- Diversify holdings – Holding assets in jurisdictions that do not tax capital gains (e.g., the listed European countries) can reduce exposure.
- Professional tax planning – Engaging advisors early is essential because many of the proposed changes are complex and may involve retroactive elements that could affect 2021‑2022 returns.
Caveats
- Comparability issues: Tax rates vary by income level, filing status, and local deductions, making direct country‑to‑country comparisons imperfect.
- Policy uncertainty: The proposal has not yet been enacted; legislative changes could alter rates, thresholds, or retroactive applicability.
- Residency requirements: Moving to a low‑tax jurisdiction typically requires physical presence, proof of domicile, and compliance with local tax laws; it is not a shortcut that can be applied after a sale.
Bottom line: If the Biden capital‑gains proposal becomes law, high‑income investors could face an effective tax rate close to 50 % on the sale of appreciated assets. Those with sizable unrealized gains should evaluate the timing of transactions, consider relocation to jurisdictions with favorable tax treatment, and begin the residency or citizenship process well before any legislative changes take effect.
