Commentary Biden Turns American Dream of Retirement Into a Nightmare

f you’re one of the millions of Americans struggling to save for retirement today, get ready for more struggle, at least if President Joe Biden gets his way. He’s proposing a tax hike on savings that would mean a negative rate of return for many people after adjusting for inflation.

As part of his trillions of dollars in tax hikes, Biden has proposed a 45% tax on capital gains, painting it as a tax on the boogeyman of “greedy” billionaires. In reality, 12.5 million Americans—mostly middle class—pay this tax on their retirement savings.

That’s why every American should be horrified that Biden wants to raise this tax to the highest rate in 111 years. Such a move would severely hamper people’s ability to save for retirement, and it would cripple economic growth.

This is especially true in the high-inflation environment created by Bidenomics. The declining value of the dollar is critical when planning for retirement since it means you need to be prepared to pay much more in the future as the cost of living climbs ever higher.

That forces people to put their savings into investments with higher rates of return, a phenomenon known as chasing yield. If someone buys a bond with a 3% yield, but inflation is 4%, then the person’s real (inflation-adjusted) return is negative because the larger number of dollars lost so much purchasing power.

Of course, even if you lost money in real terms, you still have to pay capital gains tax on the paper gain.

A 45% tax leaves our 3% bondholder with a 1.65% nominal return on investment, but a real return of negative 2.35%. The one-two punch of inflation and capital gains means saving is for suckers.

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