Tax Experts: Harris’s Unrealized Capital Gains Tax Proposal Is Unworkable, ‘Constitutionally Suspect,’ ‘Economically Destructive’
Democrat presidential nominee Vice President Kamala Harris’s proposal to tax unrealized capital gains may be unconstitutional, unworkable, and “economically destructive,” according to tax experts.
Breitbart News reported that Harris’s tax policy proposal would increase taxes by $5 trillion over ten years.
BREAKING: Kamala Harris economic adviser affirms that there is a plan to tax unrealized gains.
CNBC says: “It will not happen in my lifetime.” pic.twitter.com/eL9n8LeJ0A
— unusual_whales (@unusual_whales) August 28, 2024
“It turns out Kamala is the communist everyone thought she was. When you promise price controls on food, you end up with bread lines at the grocery store. When you add $1.7T more spending, inflation goes back up,” President of Club for Growth Action David McIntosh said in a written statement. “Bidenomics failed badly. Life will be even worse under Kamunism. Trump’s plan will bring back prosperity for all Americans. The choice is clear.”
Although there is no exact estimate of the economic cost of Harris’s tax proposals, Harris mirrors many of the proposals from President Joe Biden’s 2025 budget proposal.
The Tax Foundation found that Biden’s budget proposal, which is similar to Harris’s economic proposals, would:
- Reduce Gross Domestic Product (GDP) by 1.6 percent
- Reduce wages by 1.1 percent
- Reduce full-time equivalent jobs by 666,000
The trillions of dollars in proposed taxes would include a 25 percent minimum tax on unrealized capital gains for those making more than $100 million. Gains are only “realized” when an investor sells an investment for more than its initial price.
Americans for Tax Reform (ATR) cited a poll showing 76 percent of independents oppose taxes on unrealized gains.
Although Harris may be using populist proposals during her tight election against former President Donald Trump to boost her chances of winning, economic and tax experts believe they may have severe problems.
Adam Michel, the director of tax policy studies at the Cato Institute, told Breitbart News in an interview, “The Senate will, regardless of who’s in control…have a relatively narrow margin, and [an attack] like this is both administratively costly, if not unworkable, [and] constitutionally suspect.” He also described it as “economically destructive.”
Michel wrote that Harris’s proposed tax on capital gains does not serve as any one component of the 11 measures federal agencies use to define income. Cato’s Chris Edwards also wrote that unrealized gains have been excluded from income since the income tax was first instituted in 1913.
Michel noted that leftist tax scholars have long sought to change the definition to one’s annual change in net worth.
The Cato tax policy director also found, in a Substack post, that taxing unrealized capital gains may give tax authorities significant headaches:
One of the practical challenges is appropriately accounting for losses when the value of an asset declines. If paper gains are taxed, paper losses require a rebate for pre-paid taxes. In 2022, when Elon Musk’s net worth declined by a record-breaking $182 billion, the government would have owed him a $45 billion check—in effect, paying him back some of the taxes he paid in previous years on gains that were only fleeting. Writing the wealthiest Americans large checks when the economy falters would create significant budgetary issues, not to mention difficult political perceptions.
Acknowledging some of these administrative difficulties, the brief description of the Harris proposal includes rules that formulaically value non-tradeable assets, a separate system of rules for illiquid taxpayers, and refund rules for some overpayments. Even with simplified rules, taxes based on asset values are all but impossible to administer and would place extraordinary new burdens on an already poorly performing IRS. It took 12 years for the IRS and the estate of Michael Jackson to reach a court-mediated agreement on the value of the estate’s assets. Going through such a process every year for all taxpayers with assets near the tax threshold is administratively impracticable.
“[It] will soon be applied to small-business owners, and you will be forced to sell your restaurant immediately,” Trump said at an event in Las Vegas, Nevada, in August.
Although some Americans can brush off the thought of a tax on the super-rich’s wealth, the federal income tax, when it first started, exempted 99 percent of Americans from the tax.
Senate Finance Committee Chairman Ron Wyden (D-OR) proposed a similar tax on unrealized capital gains at $10 million in assets or $1 million in income.
“The more that these proposals are socialized, the more likely they are to become law, and if we just dismiss them as simply just a narrow tax on a few people or something that has no chance of becoming law, I think that just greases the wheels for those folks that are added promoters of it to push even harder,” Michel explained to Breitbart News.
Michel concluded, “And it is just the tip of the iceberg—it’s one of more than 90 proposed tax increases and other changes that target the engine of American prosperity.”
Sean Moran is a policy reporter for Breitbart News. Follow him on Twitter @SeanMoran3.
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