If you pay much attention to finance or politics, you’ve probably heard a lot of opinions about capital gains taxes. Recently, with the nomination of Kamala Harris as the Democratic candidate, investors are once again wringing their hands about her controversial opinion on unrealized capital gains taxes.
Capital Gains, Taxes, and You
Generally speaking, Democratic candidates favor more heavily taxing the wealthiest people, which often includes taxing the capital gains they earn on their assets. If you’re not an investor and you don’t really keep up with Wall Street, this probably doesn’t apply to you. If you are among the richest people in the country, you probably have some pretty strong opinions about how much the government should be taxing your capital gains.
Why is it Controversial?
The wealthiest people in the country maintain that they carry too much of a tax burden compared to lower-income people. While it’s true that the upper percentage of earners pay far more in taxes than the rest of the people in the country, proponents of progressive taxes argue that this makes sense. After all, wealthy people earn orders of magnitude more money than the rest of the country, why shouldn’t they pay orders of magnitude more in taxes?
Harris’s Standpoint
Kamala Harris has endorsed a Biden administration plan that would expand the taxes investors pay on capital gains. This plan would implement taxes on unrealized capital gains. Put simply, this means people who hold stock that has increased in value but who haven’t cashed those stocks out yet would still owe taxes on their price jump.
Are These Plans Realistic?
The idea behind a tax on unrealized capital gains is that it would help the government ferret the money it feels it’s owed out from savvy investors who are keeping their liquid capital tied up in assets. However, the wealthiest people on Wall Street aren’t fans of this idea, and it would face a serious uphill battle to become legislation.
Elon Musk Hates it
Billionaire Elon Musk, who is facing some economic woes of his own with social media platform X, hates Harris’s plan. “This path leads to bread lines & ugly shoes,” he posted, evoking popular fears of food rationing often bandied about by the uber-rich when politicians suggest increasing their taxes.
What’s in the Plan?
Despite the outrage, the plan actually wouldn’t affect that many people. In fact, many literal one-percenters wouldn’t have their taxes increase at all as a result of the Harris campaign’s proposed tax hike. The outline has been characterized as a way to craft an effective minimum tax rate for the richest 0.3% of people in the country.
Why Is This Needed?
The Biden administration has described this tax plan as a necessary way to keep parity between the highest earners and the rest of the country. The White House has described the proposed tax bill as a way for people with considerable stock holdings to pay the same “marginal rate on their income just like a high-paid worker pays on their wages.”
Who Would Be Affected?
The Biden administration’s plan, which is supported by Harris’s campaign, would impose a tax on the unrealized capital gains of households that have a net worth of at least $100 million. Notably, this is a watered-down version of the “wealth tax” proposed by Bernie Sanders and Elizabeth Warren, who call for much more sweeping reforms.
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Is This Fair?
Some wealthy people say it’s not fair for them to be taxed on unrealized gains. However, proponents of these changes argue that these gains are basically income, because rich investors are able to borrow against unrealized gains. As such, taxing them would only be fair given that they can already benefit from such investments financially without ever selling them.
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Economist’s Take
It’s worth pointing out that economists have described this plan as “unworkable,” and have even charged that it wouldn’t help make up the huge national deficit. Trying to employ a very complex, very narrow tax on only the highest earners is basically too niche to move the needle on a national level. Biden tried to get the bill passed in 2021 and 2022 and still didn’t drum up enough support from his own party, showing that the appetite for such legislation just isn’t there, even from Democrats.
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