Katherine Zehnder
Carolina Journal
Kamala Harris, the Democratic presidential nominee, has proposed a plan to impose a 25% tax on unrealized capital gains accrued by Americans with a net worth of $100 million or more.
“The Harris proposal claims that the wealthy need to pay their fair share in taxes; however, it does not clarify how much this is. The data shows that in 2021, the top 1% of income earners paid 45.8% of all federal income taxes,” Joseph Harris, Fiscal Policy Analyst for the John Locke Foundation, told the Carolina Journal. “The Harris proposal claims that the tax on unrealized capital gains will only be levied on the ultra-wealthy; however, this is also how the government promoted the implementation of federal income taxes. In 1913, if you earned less than $20,000 then you were exempt from paying federal income taxes, which is roughly $635,000 in 2024.”
Under current law, long-term realized capital gains are taxed at a graduated rate under the individual income tax, with 20% usually being the highest rate. Current law only allows for the taxation of capital gains upon realization of an event, such as the sale or disposition of an appreciated asset.
“The so-called billionaire minimum tax would take the tax code in the wrong direction by imposing a complicated tax on a narrow segment of high-earning taxpayers in a way that’s never been tried,” according to the Tax Foundation. “This proposal would add new compliance burdens for taxpayers and administrative challenges for the IRS while weakening the US economy by raising the tax burden on saving and entrepreneurship. It would also require a new wealth reporting system, allowing the IRS to track the wealth of an unspecified number of Americans every year (some people with less than $100 million of wealth would be required to report it to the IRS).”
According to the proposal’s supporters, the current law disproportionately benefits “high-wealth taxpayers” because they enjoy the appreciation of unrealized gains and pay a lower tax rate when they cash out, than do lower—and middle-income earners on their actual income..
They also reference disparities, typical of the ideologically left and social justice movements, including gender, geography, race, and ethnicity.
“Taxpayers would calculate their effective tax rate for the minimum tax and, if it fell below 25 percent, would owe additional taxes to bring their effective rate to 25 percent,” according to an analysis from the Tax Foundation. “Any additional taxes owed because of the minimum tax would be payable over nine years initially, and over five years going forward. The change means wealthy taxpayers would owe taxes on capital gains each year, even if the underlying asset had not been sold.”
Experts explain how this 25% percent tax on unrealized capital gains would negatively impact the already struggling housing market in North Carolina.
“A tax on unrealized capital gains is an oxymoron,” Brian Balfour, VP of Research for the John Locke Foundation, told the Carolina Journal. “If a person still holds the asset, they haven’t yet gained anything. The asset could decrease in value at any time, and the person may end up selling it at a loss. To tax something from which the owner has not yet actually benefitted from is historically bad policy. Many experts warn this tax would devastate the stock market, which would harm working-class people trying to save for retirement.”
Balfour further pointed out that, far from good policies that have positive downstream effects, this policy could spread its harm to other areas, like the real estate industry.
“If people would have to pay a tax on the increased value of a home they still own, that liability decreases the value of that home,” he said. “People will become more hesitant to become homeowners over fear of having to pay this tax every year their home increases in value – how will they afford this annual burden? Depressed housing values will discourage new housing construction, which will exacerbate housing shortages being experienced acutely in North Carolina. A lack of housing options will be especially harmful to the poor and working class, making the dream of home ownership less likely.”
If implemented, the proposal would impose a minimum tax of 25% on income, generally inclusive of unrealized capital gains, for taxpayers with wealth greater than $100 million.
“The Harris campaign defends this tax proposal on the basis that it will only apply to the very wealthy,” continued Balfour. “But the impact of this horrendous idea would be heavily felt by low- and middle-income families.”
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