Fact check: What does President Biden’s FY2025 budget propose for top individual income tax rates and capital gains taxes?

1. What the Budget Text Proposes — A Clear Shift in Rates and Treatment

The administration’s FY2025 budget proposal specifically calls for restoring the pre‑2017 top ordinary income tax rate of 39.6% from the current 37% for high‑income taxpayers and for taxing capital gains as ordinary income for wealthy investors, while treating death as a realization event that triggers capital gains taxation ^{[1] [2]}. These provisions aim to align the tax treatment of large investment gains with ordinary income at the top end, eliminating the preferential top rate that currently applies to long‑term capital gains for the highest earners; the change would primarily target those with significant annual incomes or multi‑million‑dollar estates. The proposals also include tightening estate and gift tax rules, so the combined effect is designed to capture wealth transfers and deferred gains that currently escape immediate taxation ^[2].

2. Who the Administration Says Will Bear the Burden — Thresholds and Targeting

The administration frames these changes as targeted at the wealthy, proposing that the 39.6% top rate apply to taxpayers above specific high‑income thresholds and that capital gains taxes effectively rise to that same 39.6% level for investors with very large incomes — with several summaries noting a practical effect on those making at least $1 million a year or households over the $400,000 threshold for other surtaxes ^{[3] [2]}. The budget narrative and summaries emphasize closing loopholes and preventing wealth avoidance through stepped‑up basis at death, which would convert unrealized gains into taxable events; these mechanics indicate the administration’s intent to tax large accumulations of unrealized appreciation and high annual capital gains at ordinary rates rather than preferential capital‑gains rates ^{[1] [3]}.

3. Independent and Outside Analyses — Economic and Distributional Warnings

Non‑administration analyses, exemplified by the Tax Foundation, estimate that the combined suite of tax changes in the budget could produce measurable macroeconomic effects, including a predicted long‑run GDP reduction of about 1.6%, lower wages, and an employment decline on the order of hundreds of thousands of full‑time equivalent jobs, while also noting increases in top tax rates across individual, corporate, and capital gains income ^[4]. These projections represent an economic modeling perspective that frames higher marginal tax rates and less preferential treatment for capital income as having negative incentives for investment and labor supply; the Tax Foundation’s June 21, 2024 analysis quantifies those potential tradeoffs and is often cited by critics who argue the proposal would slow growth ^[4].

4. Alternative Framings and Political Context — “Doubling” and Policy Goals

Media and advocacy summaries sometimes describe the capital gains change as nearly doubling the capital gains tax for the very wealthiest taxpayers by bringing rates up to 39.6%, a framing used to underscore the size of the change relative to current preferential rates ^{[3] [2]}. Supporters present the move as closing a fairness gap between wage income and realized investment gains, and as a revenue source for other budget priorities, while opponents amplify potential economic costs; these divergent framings reflect differing priorities on equity versus growth in public debate, and the campaign‑style language in some summaries highlights political aims as much as technical tax policy ^{[3] [2]}.

5. Ancillary Measures That Matter — Billionaire Minimum Tax and Medicare Surtax

Beyond the headline rate changes, the broader FY2025 package and related proposals include a minimum tax on billionaires and increases in Medicare surtax rates for high earners, elements intended to prevent ultra‑wealthy households from paying very low effective tax rates on large unrealized gains and investment returns ^[3]. Those proposals expand the administration’s toolkit beyond ordinary rate increases to structural remedies that address wealth accumulation and effective tax avoidance; including these measures changes the revenue and distributional calculus because they capture additional high‑net‑worth taxpayers who might otherwise shelter income, and they have been part of previous Biden proposals referenced across summaries ^{[3] [2]}.

6. Bottom Line — What to Expect in Negotiations and Implementation

If enacted as proposed, the FY2025 budget would meaningfully raise the marginal tax burden on the highest earners by restoring a 39.6% top rate and removing preferential capital gains treatment for the wealthiest, while adding targeted anti‑avoidance measures such as realizing gains at death and a billionaire minimum tax; outside analyses caution these moves would have measurable economic effects even as they raise revenue and address perceived inequities ^{[1] [4] [3]}. Legislative outcomes will depend on congressional negotiations, where differing economic models and political framings—emphasizing either fairness or growth—will shape final thresholds, rates, and carve‑outs, so prospective taxpayers and advisors should anticipate changes in both statutory rates and tax base rules if parts of the proposal advance ^{[5] [2]}.