That stinking gust of hot air you may have noticed on Republican and conservative social media over the past day or two was a fabricated claim that Kamala Harris plans to raise taxes on everyone’s unrealized capital gains if she becomes president.
That would be a departure from current law, which taxes capital gains only when the underlying assets are sold or “realized.”
That it is a mythical accusation has not stopped right-wing politicians and Republican Party officials from worrying about the economic consequences of such a change, and the allegedly dire consequences for average Americans.
When there is uncultivated land and unemployed poor in a country, it is clear that the property laws have been extended to the point of violating natural rights.
Thomas Jefferson
For example, here’s far-right braggart Mike Cernovich, who wrote on Twitter on Tuesday at X: “If you own a house, subtract what you paid for it from Zillow’s appraisal. Be prepared to pay 25% of that in a check to the IRS. That’s your unrealized capital gain that should be taxed under Kamala Harris’ proposal.”
And Chicago venture investor Robert Nelson: “Taxing unrealized profits is truly the most insane, economy-destroying, innovation-killing, market-crashing, pension-fund-decimating, unconstitutional idea, probably planted by Russia or China to destroy the economy. Dems need to run away from this incredibly stupid idea.”
Okay, guys, take a deep breath. Harris has not proposed taxing your unrealized capital gains, or mine. What she has said, as the Harris campaign told me, is that she “supports the revenue boosters in the Biden-Harris FY25 [administration] budget. Nothing more than that.”
What’s in the Biden-Harris administration’s fiscal year 2025 budget?
The budget plan does indeed call for a tax on the unrealized capital gains of the country’s super-rich. That’s part of the proposal for a minimum tax of 25% on the annual income of taxpayers with assets of more than $100 million — a wealth tax. If you’re in that group, you’re in luck. But at that level of wealth, you have no reason to complain about paying a minimum of 25% of your annual income.
Either way, there aren’t many of you “centi-millionaires,” as the category is called — 10,660 in the U.S., according to one 2023 estimate. That includes a handful of centi-billionaires like Elon Musk ($249 billion, according to Forbes), Jeff Bezos ($198.5 billion) and Mark Zuckerberg ($185.3 billion). It’s doubtful anyone in this category is crunching Zillow estimates to figure out the resale value of their home (or homes).
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Several other proposals in the budget plan touch on taxes for the wealthy. One would restore the 39.6% top income tax rate, which was slashed to 37% in the Republicans’ 2017 Tax Cut and Jobs Act; Biden has proposed allowing that cut to take effect next year as planned. The restored top rate would apply to incomes above $731,200 for couples, $609,350 for singles, starting with this year’s income.
Another provision would raise the tax rate on capital gains and dividends to the same rate as on ordinary income — but only on annual incomes of more than $1 million for couples ($500,000 for singles). Under current law, capital gains and dividends get a huge cut: The top rate is 20%, though it’s zero for couples with incomes of $89,250 or less ($44,625 for singles), and 15% for those with incomes of more than that but less than $553,850 ($492,300 for singles).
The preferential rates on cap gains “disproportionately benefit high-income taxpayers and provide many high-income taxpayers with a lower tax rate than many low- and middle-income taxpayers,” the White House explained. They “also disproportionately benefit white taxpayers, who receive the vast majority of the benefits from the lower rates.”
The proposal would also eliminate the notorious step-up in basis that heirs enjoy. Currently, when those who inherit stocks, bonds, real estate or other capital assets sell those assets, they are taxed only on the difference between what they were worth at the time of the original owner’s death and their value when subsequently sold — not the difference between what they cost when they were purchased (the “basis”) and what they were worth when they were eventually sold.
This process turns the capital gains tax into what the late Ed Kleinbard, a tax expert at USC, called America’s only voluntary tax. Because owners of capital assets pay no taxes on their appreciation until they are sold, they can defer the tax indefinitely by simply not selling. When they die, the step-up essentially extinguishes the previous capital gains liability for good, leaving only a tax on any gains for the heirs from the date of their inheritance.
And wealthy families can enjoy the benefits of their endowment portfolio by borrowing on it, without having to sell. That’s an option rarely available to ordinary taxpayers, who may have to sell to make ends meet. This is how these families maintain their fortunes without paying their fair share of income taxes.
The Biden plan would repeal the step-up for heirs by imposing a capital gains tax on the estate of the deceased, calculated from the original purchase and charged to the estate of the deceased. Spouse inheritances would be exempt, and the existing exemption of $250,000 of gain per person on the transfer of a primary residence would remain in place.
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Biden’s plan would also raise the net investment income tax and Medicare tax rates to 5% each on incomes above $400,000, from the current 3.8%. That would bring the top rate on capital gains to 44.6%.
Is that a lot? Too much? Too little? It’s true that the capital gains tax is generally lower than the tax on ordinary income, rising only briefly to 40 percent in the 1970s. Overall, though, it’s a relative pittance in postwar terms: the top tax rate on ordinary income was 90 percent or higher from 1944 to 1963, 70 percent from 1965 to 1981, and 50 percent from 1981 to 1986. Americans enjoyed unprecedented prosperity for most of that period.
Which brings us back to the idea of the wealth tax, which has terrified the rich and their water carriers in the press and the punditocracy. Noah Rothman of the right-wing National Review, for example, was particularly irritated by Michelle Obama’s critique of “the affirmative action of generational wealth” in her speech at the Democratic convention Tuesday night.
“The idea that accumulating material wealth and bequeathing it to your descendants in the hope that they will build on it and do the same for their children is one of the foundations of the American social contract,” Rothman groused. “It’s absurd to make that sense of industry a source of shame.”
The idea that the descendants of millionaires and billionaires are building on their inherited wealth is nice, but rare in practice. As asset manager UBS reported last year, for the first time in the nine years it has been tracking extreme wealth, “billionaires have amassed more wealth through inheritance than through entrepreneurship.” This “great wealth transfer,” it added, “is gathering momentum.”
As I’ve written before, the concentration of wealth in America has reached levels that make the Gilded Age of the 19th century look like mud. In the US, there were 66 billionaires in 1990, and about 750 in 2023.
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Critics of a wealth tax often argue that it’s unworkable because it’s hard to value nonmarketable assets — think artwork, or almost anything other than stocks, bonds and real estate, which can be valued at a market price. The Biden plan addresses that. Nonmarketable assets would be valued at their purchase price, or the value they were last borrowed or invested in, with an annual increase based on Treasury interest rates.
For those who think a wealth tax is un-American, look to the Founding Fathers. They believed that generations of accumulated wealth was detrimental to a free republic.
“When there is in a country a land of uncultivated land and unemployed poor,” Thomas Jefferson wrote to James Madison in October 1785, “it is evident that the laws of property have been extended to the point of infringing upon natural rights.”
Madison in 1792 saw the duty of political parties as combating “the inequality of property, by an excessive and especially unmerited accumulation of wealth.” Benjamin Franklin urged the Constitutional Convention in Philadelphia, albeit unsuccessfully, to declare that “the State has a right to discourage large concentrations of property as dangerous to the happiness of the human race.”
They did not seem concerned that combating the excessive accumulation of wealth was complicated or unnecessary. On the contrary, if they were still around today, they would seem to agree with the phrase beloved of equality advocates that “every billionaire is a failed policy.”
When you add it all up, it almost sounds like Michelle Obama was channeling the Founding Fathers. And if Kamala Harris supports provisions in Biden’s budget plan aimed at requiring the super-rich to pay their fair share of taxes — as her campaign has confirmed — she’s channeling them, too.
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This story originally appeared in the Los Angeles Times.
