Biden’s tax plan: an incentive to increase allocation to collectibles?

President Joe Biden is expected to announce major tax increases on wealthy Americans. This includes almost doubling capital gains tax (CGT) for people earning more than $1M. The administration intends to use the tax proceeds to fund a massive increase in funding of childcare and education.

The media has reported that the top income tax rate will go up from 37% to 39.6%. At the same time, ordinary income tax rates will apply to capital gains and dividend payments for those earning more than $1M. In addition to the high bracket income tax of 39.6%, a surtax of 3.8% for the wealthy to fund Obamacare will result in an effective CGT for the wealthiest Americans of 43.4%.

In the United States, the IRS has determined that the tax rate on collectibles - including fine wine (as well as art, antiques, stamps and even metals such as gold or silver) - is 28%. If Biden’s plan does not include changes to the tax treatment of collectibles, this would result in a material incentive to increase allocation to collectibles.