Can Joe Biden's new tax plan push the US into recession? Here's what we know

In the midst of India's heated political discussions over inheritance tax, the United States is facing its own turmoil as the spectre of substantial tax increases looms large over the country's economy. 

President Joe Biden's proposal to significantly raise the capital gains tax rate in the US, outlined in the 2025 budget, which was unveiled on March 11, has stirred a hornet's nest. This proposal, slated to take effect from January 1 of the following year if Biden secures re-election in November this year, has set off alarm bells across the nation.

The crux of Biden's plan is to elevate the capital gains tax to a staggering 44.6% for individuals with a taxable income exceeding $1 million annually and an investment income surpassing $400,000. This would mark the highest capital gains tax rate in US history, eclipsing even the previous high of 40% witnessed under President Jimmy Carter in the late 1970s. By comparison, India's capital gains tax ranges from 10% for long-term investments to 32% for short-term investments.

Certain states would witness an even more dramatic spike in the capital gains tax rate, with figures surpassing 50%. Among them are California, with a proposed rate of 59%, and New Jersey, exceeding 55%. Oregon, Minnesota, and New York are also slated to experience rates above 50%.

Proponents of Biden's tax plan argue that it targets the affluent and forecasts a substantial boost of over $5 trillion to the US economy over the next decade. However, critics offer a starkly different perspective. According to the Tax Foundation, an economic think tank, the proposed tax hike could lead to a 220-basis-point reduction in US GDP in the long run, along with a 160-basis-point decrease in wages and the elimination of 788,000 jobs. Moreover, detractors contend that the new regulations would significantly complicate the US tax code.

Biden's budget blueprint doesn't stop at capital gains tax. It also aims to increase the corporate tax rate from 21% to 28%, abolish deductions on salaries exceeding $1 million annually, impose a 25% minimum tax on individuals with assets exceeding $100 million, and eliminate exemptions on gifts and estate taxes. Notably, the estate tax, applicable upon an individual's death, is slated to rise to an effective rate of 60% to 80%.

The unveiling of these proposals has sent shockwaves through US businesses, particularly given the timing in an election year. Opposition Republicans warn that the proposed tax hikes could spell disaster for small businesses and entrepreneurs, stifling innovation and impeding growth. Some even argue that it can lead to a stifling of demand overall, having a domino effect on other sectors, which, potentiallym could plunge the country into recession.

As the debate intensifies, all eyes are on the upcoming elections and the potential implications for the economic landscape of the United States.