Biden Proposes Capital Gains Hike in Address | Middle-Market Public Policy Roundup

The Biden administration unveiled a plan this week to provide universal child care and other programs, which it plans to pay for with a hike on capital gains taxes and a repeal of tax exemptions used by private equity fund managers. In addition, a research paper published by the Federal Deposit Insurance Corporation showed the positive impact private equity firms had in stabilizing the banking system after the 2008 financial crisis. Lastly, a Securities and Exchange Commission committee will review findings on what the agency can do to improve access to capital for underrepresented founders and investors.

Biden Proposes Capital Gains Hike in Address

• The Biden administration is expected to set out a $1.8 trillion spending plan on Wednesday for universal child care, tuition-free community college and other programs paid for by a hike in capital gains and other taxes.
• During a prime-time address to Congress, Biden will detail the plan, known as the American Families Plan, which seeks to improve educational and child-care needs through $1 trillion in new spending and $800 billion in tax cuts, according to the White House.
• To pay for the new programs, the administration proposes raising the top income-tax rate to 39.6% from 37%. For households making more than $1 million, Biden would also raise the top rate on capital gains and dividends to 39.6% from 20%. Including existing payroll and investment taxes—each 3.8%—the top rates on wages and capital gains would reach 43.4%, up from 23.8%. [Catherine Lucey and Richard Rubin, The Wall Street Journal]
• Biden has discussed raising taxes on capital gains since the campaign trail last year. Lawmakers have already introduced legislation that would increase the tax and repeal other exemptions.
• The White House has voiced support of repealing tax exemptions for private equity and other investors.
• An increase in capital gains taxes would significantly increase burdens on high-earning private equity managers and firms.

PE Provided Financial Stability After the Financial Crisis: Report

• Private equity investors had a positive role in stabilizing the banking system in the wake of the 2008 financial crisis, according to a research paper published by the Federal Deposit Insurance Corporation this week.
• Researchers from the FDIC, as well as Yale and Duke universities, investigated the role of private equity in the resolution of failed banks after the 2008 financial crisis.
• Using FDIC data, the researchers found that PE investors made substantial investments in failed banks, which helped stabilize them at the time.
• “Our results suggest that private equity investors had a positive role in stabilizing the financial system in the crisis,” the report’s authors said.

SEC to Hold Meeting on Increasing Opportunities for Underrepresented Founders and Investors

• The Securities and Exchange Commission’s Small Business Capital Formation Advisory Committee will meet on April 30, to examine solutions to increase access to capital for underrepresented founders and investors from smaller funds.
• Following its August 2020 meeting, the committee presented findings encouraging the SEC to improve access to capital for underrepresented founders and investors. Friday’s discussion will include a presentation highlighting data quantifying differential access to capital across demographic groups and geographies.
• Following a discussion on potential solutions to improve equitable access to capital, the committee will deliberate on potential recommendations.