Vice President Kamala Harris is sticking with many of President Biden’s tax plans, including his term-long pledge not to raise taxes on anyone making under $400,000 a year. But she also has other policies (some Biden’s, some her own) to make sure the wealthy pay what she deems their fair share.
They include raising top marginal rates on the top earners from 37% to 39.6% and a hefty hike in the capital gains rate to 44.6% from its current 20%, or 23% with Medicare surcharges. But among the most controversial taxes is the plan to reprise the most controversial of the Biden proposals—a tax on unrealized capital gains for taxpayers with wealth greater than $100 million.
While few may defend people with $100 million, the capital gains tax on unrealized gains is not well understood by the general population and is being spread throughout social media as a tax on anyone with unrealized gains. In one meme, an anonymous creator circled the tax and wrote in red: “This means they will tax you 25% extra every year for the house you own.”
Most wealth tax proposals under discussion actually are less onerous—some envision paying the 20% or 23% on unrealized capital gains over multiple years or even decades. But even here, there are serious logistical issues.
In reality, however, a wealth tax has little chance of being enacted, Greg Valliere , chief U.S. policy strategist, AGF Investments. The likelihood of “massive new taxes” under a Harris Administration may be creating anxiety amongst the wealthy and their financial advisors, “but that’s not the consensus on Capitol Hill, where there simply aren’t enough votes for big new taxes,” Valliere said in a recent note.
“LIKE EVERYTHING IN WASHINGTON, this issue depends on who has the votes. Proponents of huge new taxes on the wealthy and profitable corporations would need Harris to win, the Democrats to take both houses, and a likely Constitutional challenge on a wealth tax to succeed,” Valliere wrote.
In fact, not even Biden could get support for a wealth tax or higher corporate taxes (Harris is pitching a federal tax increase from 21% to 28% on corporations), during his first two years in office, when Democrats held a narrow majority in both the House and Senate. "The Senate in particular became a stumbling block and the outcome could have been significantly different if his party had held even one more seat in the Senate at that time,” PriceWaterhouseCooper said in a report on wealth taxes.
Chances are “very slim” in 2025 and beyond for one major reason, Valliere said. “The Senate is likely to flip back to the Republicans, who are strongly opposed to major new taxes. We think there’s a 75% chance that the GOP will take the Senate, even if Harris wins the presidency,” the longtime Washington observer said.
Despite support from Democrats such as Sen. Elizabeth Warren and others for a wealth tax on unrealized capital gains, the fear of the ensuing ripple effect on the economy, investments, business creation and family-owned businesses could be dire. Taxpayers without the funds to pay the 25% unrealized gains tax would either need to borrow or potentially sell a home or business to pay their tax bill.
Also concerning, what if gains soar one year, you pay tax, and then the asset price plummets the next year, experts have asked. The tax would also “be be a nightmare to enforce and would send the class warfare debate into the stratosphere. It has no chance of enactment because there aren’t the necessary 60 votes in the Senate,” Valliere said.
Some tax experts have also argued that the unrealized gains tax is unconstitutional and may not withstand a legal challenge. A tax on unrealized gains “violates the equal apportionment clauses of the Constitution and possibly the due process clause of the 14th Amendment. Over a century of case law has found that a tax on unrealized gains is by no measure or definition a tax on ‘income,’” the Philanthropy Roundtable argued in a report.
However, the U.S. Supreme Court held in Moore v. United States, that the 2017 tax act’s Mandatory Repatriation Tax (MRT), the realized earnings of foreign corporations, is a constitutionally permissible income tax authorized by the Sixteenth Amendment, according to the law firm of Skadden, Alps LLC. Valliere said one way or another, Harris will need to find revenue to pay for her “huge laundry list of new spending proposals,” predicting at least some tax increases could win enactment as part of the budget reconciliation act.
Harris has proposed a number of subsidies and tax credits, including a $3,600 per child tax credit (or up to $6,000 in total benefits for middle- and low-income families during the first year of a child's life), a $25,000 down payment subsidy and $10,000 tax credit for first-time homebuyers. “Ironically, both Trump and Harris might need to continue stiff tariffs on countries like China because they need the revenue. But the U.S. budget deficit, now close to $2 trillion annually, could still surge higher,” Valliere predicted.