Tax Proposal Creates A Lot of Debate
Let's dive into a hot topic that’s sparking debate across the political spectrum—Vice President Kamala Harris’s proposal to tax unrealized capital gains. Now, if you’re scratching your head wondering what that means, don’t worry—I’ve got you covered.
First off, unrealized capital gains are the paper profits you have on an investment that you haven’t sold yet. For example, if you bought stock at $100 and it’s now worth $150, you’ve got $50 in unrealized gains. Normally, you’d only pay taxes when you actually sell the stock and "realize" those gains.
But Harris’s proposal suggests taxing these gains before they’re realized, specifically targeting individuals making over $100 million. This idea is generating a lot of buzz—and not all of it positive.
Critics, including tax experts and conservative voices, are warning that this proposal could be a serious misstep. Let’s break down why.
BREAKING: Kamala Harris economic adviser affirms that there is a plan to tax unrealized gains, for households worth more than $100,000,000.
CNBC says: "It will not happen in my lifetime." pic.twitter.com/iZKTiTYt92
— unusual_whales (@unusual_whales) August 28, 2024
First, there’s the constitutional question. Some experts, like Adam Michel from the Cato Institute, argue that this kind of tax might not even be constitutional. The U.S. tax system has always taxed realized gains—income that you actually receive, not just the increase in the value of your assets on paper. Michel points out that this proposal would challenge the very definition of income that’s been in place since the income tax was introduced in 1913.
Then, there’s the practicality issue. How do you tax something that’s just on paper? For instance, if the value of an asset drops after you’ve paid taxes on its unrealized gains, should the government then refund those taxes? Take Elon Musk, for example—his net worth dropped by $182 billion in 2022.
Under Harris’s plan, the government would have to cut him a check for $45 billion to refund the taxes he would have paid on his "paper" wealth. That’s not just a logistical nightmare—it could create massive budgetary and political headaches.
And the concerns don’t stop there. David McIntosh, President of Club for Growth Action, didn’t mince words when he described the proposal as “economically destructive.” According to him, this tax could harm the economy by discouraging investment and innovation—two key drivers of prosperity. Meanwhile, the Tax Foundation, which analyzed a similar proposal from President Biden, estimated it could reduce GDP by 1.6%, lower wages, and eliminate hundreds of thousands of jobs.
Supporters of Harris might argue that taxing the super-rich is a step toward fairness, but opponents are quick to point out that tax systems have a way of expanding. The federal income tax, for example, initially applied to just 1% of Americans. Now, nearly everyone pays it. Critics worry that this new tax on the ultra-wealthy could one day trickle down to small business owners and even average citizens.