No matter who wins the election in November, a huge conflict over capital gains taxation is looming for 2025. This might sound like the kind of thing that only applies to the extremely wealthy, but that means that it will have an outsized impact on the way the wealthiest Americans view them. It also matters for the way investors react to the market, which affects everyone’s retirement accounts and investments.
Harris’s Stance
Kamala Harris has proposed increasing the capital gains tax to 28% for most investors, and an additional 5% on top of that for those earning more than $1 million. That would be a steep increase from the current totals, from 20% and an additional 3.8% for $1 million earners.
Breaking from Biden
This is, of course, a break from Joe Biden’s stance on capital gains. Biden wanted to increase the capital gains tax to 39.6%, making some of the complaints that Harris is “radical” and “too far left” somewhat questionable. This could mean that Harris has other stances on tax legislation than her predecessor.
Unrealized Gains Tax
One of Biden’s most controversial tax proposals would have seen a tax levied on unrealized capital gains. Those are increases in the value of assets that their owner hasn’t sold yet, meaning they’ve yet to access those gains. This is deeply unpopular with the wealthiest Americans, but is a favored policy of many left-leaning voters.
Trump’s Stance
Donald Trump has a very different opinion on the matter, unsurprisingly. He hasn’t nailed down exact tax rates in his speeches, but he has expressed he’d like to lower capital gains taxes. This, naturally, endears him to investors but could anger some left-leaning voters. Of course, voters on the left are unlikely to agree with many of Trump’s policies in any case.
Trump on Unrealized Gains
And, perhaps also unsurprisingly, Trump is also very opposed to any tax on unrealized capital gains. He has described such a tax as something that would “destroy the economy,” arguing it would discourage investors from holding stocks in successful companies at all.
The Case for Taxing Unrealized Gains
Why would you tax the gains on stocks that people haven’t cashed out yet? Advocates for an unrealized gains tax say that since investors can borrow against the value of their portfolios, they’re already benefitting from their gains before they ever “realize” them.
Donations Matter
While it might seem like an increase on the taxes for capital gains would only impact the top one percent of investors, it could impact how those wealthy individuals give to the candidates. Those donations really matter for presidential candidates, as running for president is an extremely expensive endeavor.
Rattling Investors
If Harris were to rattle investors too badly, it could spook them off of their desire to invest heavily in the stock market. This could have brutal cascading effects on the economy, slowing things to a halt as companies would be unable to drum up capital from investors for new initiatives.
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Expert Opinions
Financial experts say that Harris’ plan isn’t the doomsday scenario some of her political opponents characterize it as. Still, there are some concerns about the impact an unrealized gains tax would have on venture capitalists. Also, such a tax would be very hard to implement.
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Battles Loom
No matter who wins in November, though, it’s unlikely either candidate could bring their exact tax goals to bear. Congress is highly resistant to any movement on capital gains taxes, and Harris would require Democratic control over both chambers of Congress to get any real traction on serious tax reform. Time will tell if that’s a feasible outcome or far from reality.
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