Categories: Trending now

Kamala Harris Plan To Tax Unrealized Capital Gain Is Scary, Here’s Why

2024-08-30 07:40:02

As a presidential candidate, Vice President Harris has piggybacked on many of President Biden’s tax plans, including his pledge not to raise taxes on anyone making under $400,000 a year. But she has plenty of other big plans for your taxes, reprising Biden’s tax goals, with some of her own ideas thrown in.

They include raising top marginal rates on the top earners from 37% to 39.6%. In 2019, she floated a 4% “income-based premium” on households making more than $100,000 to pay for Medicare for All, but this has not yet resurfaced in 2024. Among the more controversial of the Biden proposals—which Harris has repeated—is a tax on unrealized capital gains for taxpayers with wealth greater than $100 million. It may be labeled a “billionaire tax,” though $100 million is a tenth of a billion.

Even so, few may want to defend billionaires (or someone with a mere $100 million for that matter) in the current climate. Some argue this fairly targets extremely wealthy Americans who have taken advantage of tax rules to pay lower rates than their secretaries. For example, wealthy people can tap their resources by borrowing money rather than selling something that would trigger tax. Some attack the proposal as a wealth tax that will chill investments of capital.

Unlike an income tax, Harris’ new wealth tax would work like this. Households worth more than $100 million would pay an annual minimum tax worth 25% of their combined income and unrealized capital gains. Say you purchase stock for $10 a share. It doubles to $20 in the first year, but you still hold it. Even though you haven’t sold it, that $10 gain would be subject to the new tax.

Real estate would work the same way. You buy a house, building, or land. The increase in value over time would be taxed every year, even though you still hold it. We have never had a tax on gains that are not “realized,” meaning sold. In that sense, this new tax would be groundbreaking, a point we’ll come back to.

Apart from policy, there are administrative issues galore. How do you go about valuing everything every year to be taxed? Public company stock would be straightforward. But most assets could be a nightmare, and who in the end gets to carry the day on value? Disputes about value in tax cases are legendary and voluminous. Nearly every estate tax case with the IRS includes valuation disputes, often with competing experts. In income tax cases, charitable contributions of noncash assets such as real estate or crypto often also end up in major valuation fights.

Just imagine what annual value statements with tax returns might look like, in a world where the increase in value since last year turns into taxes. Capital gains have always been singled out for lower taxes, not higher. And except in the case of estate tax measured on death, it has been nearly sacred not to tax “earnings” you didn’t receive.

Besides, what if value spikes one year, you pay tax, and then it plummets the next year? You still have the now worthless asset and can’t sell it for much. So why the unheard-of shift to tax something before its time?

What is arguably the scariest part of this idea? What if this opens the door to a more generalized effort by the government to tax you on something that you still own? Right now the proposal is only to use this wealth tax for the truly wealthy. Not just billionaires, but also anyone with at least $100 million.

Once we start down this path, could we some years from now face a tax like this for someone with $20 million, $10 million, even $1 million? You get the idea. Even the “billionaire’s tax” to hit anyone at $100 million passes, there could be court challenges based on what the U.S. Constitution says about the government’s taxing power. The Supreme Court has not fully ruled on a question like this, although one recent guidepost came in a 2024 tax case, Moore vs. USA, in which the Supreme Court upheld a tax on undistributed foreign assets.

The chances of this wealth tax passing may not be high. Harris would need to win, and both the Senate and House would need to be controlled by Democrats. In any event, this proposal could signal the dawn of new taxes and more coming. You can read more about Harris’ big plans for your taxes.

News Today

Recent Posts

Kareena Kapoor’s Next Untitled Film With Meghna Gulzar Gets Prithviraj Sukumaran On Board

Kareena Kapoor is working with Raazi director Meghna Gulzar for her next film. The project,…

14 hours ago

Purdue basketball freshman Daniel Jacobsen injured vs Northern Kentucky

2024-11-09 15:00:03 WEST LAFAYETTE -- Daniel Jacobsen's second game in Purdue basketball's starting lineup lasted…

14 hours ago

Rashida Jones honors dad Quincy Jones with heartfelt tribute: ‘He was love’

2024-11-09 14:50:03 Rashida Jones is remembering her late father, famed music producer Quincy Jones, in…

15 hours ago

Nosferatu Screening at Apollo Theatre Shows Student Interest in Experimental Cinema – The Oberlin Review

2024-11-09 14:40:03 A silent German expressionist film about vampires accompanied by Radiohead’s music — what…

15 hours ago

What Are Adaptogens? Find Out How These 3 Herbs May Help You Tackle Stress Head-On

Let's face it - life can be downright stressful! With everything moving at breakneck speed,…

15 hours ago

The new Mac Mini takes a small step towards upgradeable storage

Apple’s redesigned Mac Mini M4 has ditched the previous M2 machine’s SSD that was soldered…

15 hours ago