Democrats have never met a tax they didn’t like. Look no further than Vice President Kamala Harris’s capital gains tax increase for proof.
The Kamala Harris campaign has introduced a new tax plan this week. The central part of the plan is to raise taxes on big corporations and wealthy families, aiming to collect about $5 trillion over the next ten years. This plan includes tax increases from President Biden’s budget earlier this year.
A key feature of this plan is a new tax on unrealized capital gains. This means households worth over $100 million would pay an annual tax of 25% on their combined income and the value of their unsold assets.
This “wealth tax” allegedly targets wealthy families who avoid paying taxes by claiming assets they haven’t sold on their taxes. Under Harris, people will pay taxes on money they never receive, which could discourage long-term investments.
Realized capital gains happen when you sell something for more than you bought it. The profit from this sale is called a realized gain.
Realized capital gains have a set value because they come from a completed sale, but unrealized capital gains are based on guesses of valuation.
Unrealized capital gains happen when the value of something you own increases while you still hold it. For example, if you buy a share for $10 and it goes up to $12, the $2 increase is an unrealized capital gain. The money is yours, even if you don’t take it.
But don’t worry, Harris will take it for you.
Your home’s value probably has netted you unrealized capital gains. You may have bought your home for $300 thousand a few years ago, but now it’s worth $500 thousand. You live in the house and have no plans to sell it, but Harris wants a chunk of the $200 thousand “profit” your home has earned. It’s money you never received, and Harris wants to tax it.
Harris’s campaign says their new tax plan will only affect households with at least $100 million in assets, about 10,000 very wealthy people in the U.S. The idea is that this tax won’t hurt the middle class much because it targets the super-rich, who wouldn’t “notice” the change.
However, history shows that government programs often expand beyond their original goals. For example, when the income tax started in 1913, it only affected a few people but eventually reached 75% of American families by 1950.
Who decides the future value of an investment, anyway? A government agency will be formed to guess the value of an asset, which would then affect how much tax money they collect. That poses a risk that these “guesses” could be changed or influenced for political reasons.
In 2020, when the Federal Reserve increased the money supply by 26%, the prices of assets like stocks and real estate increased significantly. A tax on unrealized gains could let the government take property from people by printing more money.
This could create a loop in which the government prints money, raises asset values, taxes fake “gains,” and then does it all over again.
History shows that many millionaires left the country when France introduced a wealth tax in 1982. If the U.S. faced a similar situation, government controls would likely be introduced to prevent capital flight.
If the U.S. starts taxing unrealized gains and wealthy people move their money out of the country, the government might face a tough choice. They could either ease the taxes to keep the money here or put in place strict controls to stop it from leaving. The first option would give up some economic power, while the second would lead to more government rules and tax collection efforts.
Harris touts the capital gains tax increase as a solution to her administration’s out-of-control spending, but the math doesn’t add up.
If we take the proposal at face value, 10,000 wealthy households would be affected. If each household has unrealized gains of $10 million annually, a 25% tax could bring in about $25 billion yearly.
Even though $25 billion sounds like a lot, it’s much less than our nearly $2 trillion annual budget shortfall. This tax would only cover about 2% of the deficit with current government spending, which will undoubtedly increase twofold under a Harris presidency.
Knowing that targeted policies inevitably spread outwards, Harris will surely come for you in a few years.
