Vice President Kamala Harris‘s presidential campaign recently revealed a plan to raise capital gains taxes on the nation’s wealthiest. And the Democratic nominee’s proposal is a bit of a departure from a capital gains proposal by her boss, President Joe Biden.
Harris’s idea would shake up how much different levels of earners pay in capital gains taxes, which are levied when someone makes a profit from the sale of a capital asset, such as a stock or a bond. It would alter the current three different thresholds for capital gains.
The first one is for those with taxable income up to just over $47,000. Those who fall into that lowest bucket don’t pay capital gains taxes and have a 0% rate.
The next step up is those with taxable income up to $518,900. Those individuals are taxed at a 15% rate.
Finally, the highest capital gains rate is 20% for everyone above $518,900. When a 3.8% Obamacare investment tax for top earners is included, the rate is 23.8%.
Both Biden and Harris are pushing for the highest earners to pay more in capital gains taxes. It is clear that Harris built off of Biden’s previous proposals.
“Harris is carrying forward a lot of the ideas that were put forward by the Biden administration on capital gains,” Will McBride, vice president of federal tax policy at the Tax Foundation, told the Washington Examiner. “And so in particular, she’s carried forward a large increase in the top tax rate on capital gains.”
Biden’s capital gains proposal
Biden has had several plans to soak the rich that never came to fruition, even when Democrats controlled both chambers of Congress for the first two years of his administration.
On the capital gains front, Biden wanted to raise the top capital gains rate for those earning in excess of $1 million to 39.6% for long-term capital gains taxes. He also wanted to increase the 3.8% Obamacare investment tax to 5%, bringing the combined all-in rate to a hefty 44.6%, nearly double what the all-in rate is now for the highest earners.
“Biden’s approach would have given the U.S. the highest top tax rate on capital gains in the developed world, by far,” McBride said.
Biden’s plan, if enacted, would have made the capital gains rate about the same as what ordinary income would be taxed at. One reason to have capital gains be taxed at a lower rate than ordinary income is to spur investment and encourage entrepreneurship.
There were concerns about the Biden plan, particularly that it could dampen investment in the United States because it would have hiked the capital gains rate so high.
Harris’s capital gains proposal
Harris’s plan to raise capital gains taxes isn’t quite as ambitious as Biden’s, but it would still be a noticeable change for high-earning investors, who are typically the ones making the biggest investments and starting up new companies.
Harris has proposed raising the top capital gains rate for those earning in excess of $1 million to 28% for long-term capital gains taxes — less than Biden’s proposal of 39.6%. She, like Biden, also is pushing to increase the 3.8% Obamacare investment tax to 5%, bringing the combined all-in rate for Harris’s plan to 33%.
While that 33% level for millionaires is more than 11 percentage points below Biden’s proposed top rate of 44.6%, it would still represent the highest all-in top capital gains rate since 1978, something her critics fear would be harmful to business in the U.S. and to the country’s economic growth.
“So her approach is not nearly as extreme as Biden’s approach, but it’s still quite extreme,” McBride said. He noted that Harris’s revised capital gains plan would give the U.S. the second-highest capital gains rate in the developed world after Denmark.
Because the top rate proposed by Harris would kick in at $1 million and not at the current top threshold of $518,900, her plan would essentially be adding a new bracket for the highest earners to the tax code.
Harris’s proposed change, like any of her tax ideas, is designed to bring in revenue. Still, some of Harris’s (and Biden’s) other tax changes would raise more.
“It’s not the biggest revenue raiser in the plan, but it does raise a decent amount of revenue,” McBride said.
Harris has backed several of Biden’s previous tax proposals. Another controversial one that is part of that is taxing the unrealized capital gains of the wealthiest people, something that is being dubbed a billionaire minimum tax.
The plan, first outlined in 2023, would impose a 25% minimum tax on the total income of those with assets greater than $100 million.
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The proposal, if it were to ever actually become law, is a massive departure from the current tax regime because gains would be taxed even if not realized. Under the existing tax code, billionaires and the very wealthy whose investments increase in value are taxed on that growth, known as capital gains, when those investments are finally sold off.
While some on the liberal-left flank of the Democratic Party might get excited about such a sweeping and largely unprecedented change, the political reality, at least right now and presumably in the near future, is that this won’t likely become law.
This article was originally published at www.washingtonexaminer.com
