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Vice President Kamala Harris’ endorsement of a Biden administration plan that includes a tax on stock holdings that have grown in value has emerged in recent weeks as a talking point among conservative pundits and Trump supporters who argue it amounts to socialism or even communism.
Under the current system, the federal government only taxes profits from stock investments — commonly known as capital gains — once a stock is sold. The plan backed by Harris would impose a levy on stock holdings as their value increases, whether they’re cashed in or not.
There is, however, a catch. The proposal backed by Harris would only apply to a narrow — and very wealthy — slice of the population: people whose net worth is at least US$100 million. That’s about 10 660 people in the U.S., according to one estimate.
Currently, no such tax exists — something that advocates across the political spectrum, though mostly progressive-leaning ones, view as regressive. By most estimates, the top 1 percent has approximately 40 percent of their wealth tied up in unrealized capital gains.
The lack of taxes on capital gains has been considered by some economists and tax experts as a loophole for the wealthy.
Because taxes are imposed only when stocks are sold, the wealthy have deployed a strategy popularly called “buy, borrow, die,” which involves buying assets and borrowing against the value of those assets to buy even more assets. This a tax-free action, which allows for the assets to be passed on to heirs, who end up paying no taxes on the assets. Ultimately, over the lifetime of the ownership of a given asset, no tax is paid.
That the tax would be applied only to the ultra-wealthy — and only to “tradable” assets, thus excluding real estate or shares in private startups — has done little to stymie conservative opposition to the plan, and some on the right have seized on it to argue that Harris would be bad for business.
The right-leaning CATO Institute has said such a plan “raises deeper questions about individual property rights, financial privacy, and due process.”
Former presidential candidate and venture capitalist Vivek Ramaswamy posted a video to X on Wednesday last week from a recent appearance on CNBC in which he railed against the plan.
“A few weeks ago, I started pointing out that Kamala Harris wants to tax *unrealized* capital gains,” he wrote in the post on X. “The main objection I heard was ‘she’ll never actually do this.’ Now, we’re seeing it’s one of her signature economic policy proposals.”
Ramaswamy’s post was reposted by Elon Musk, one of the wealthiest people in the world. Notably, Musk at one point planned to purchase X by borrowing against the value of his Tesla holdings before turning to a slightly more conventional loan from Wall Street banks to make the acquisition.
Other objections to the Biden and Harris proposal include that the value on unrealized assets can decline by as much, or just as soon, as they’ve increased — meaning someone will have paid a tax on value it never even took advantage of if the stock market tanks.
However, Biden’s proposal addresses this in part by assessing the tax over five years.
Jeff Huggett, a member of the Patriotic Millionaires group, wrote that average American workers experience the same kind of fluctuation in their financial lives, yet are still expected to pay tax each year on their earnings.
“The same should be expected of anyone who makes a killing on Wall Street,” Huggett wrote in a blog post in July. —NBC News
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