Kamala Harris' plan to tax unrealized capital gains is scary, here's why

As a presidential candidate, Vice President Harris has adopted many of President Biden's tax plans, including his promise not to raise taxes on people making less than $400,000 a year. But she has many other big plans for your taxes, echoing Biden's tax goals and bringing some of her own ideas.

These include raising the top tax rate for top earners from 37% to 39.6%. In 2019, she proposed a 4% “income-tested premium” for households earning more than $100,000 to fund Medicare for All, but that was not revived in 2024. Among Biden's more controversial proposals – which Harris echoed – is a tax on unrealized capital gains for taxpayers with assets of more than $100 million. It's called the “billionaire tax,” even though $100 million is a tenth of a billion.

Still, in the current climate, few are likely to want to defend billionaires (or even someone with as little as $100 million). Some argue that this is rightly aimed at extremely wealthy Americans who have exploited tax laws to pay lower tax rates than their secretaries. For example, rich people can leverage their resources by borrowing money rather than selling something that would trigger taxes. Some criticize the proposal as a wealth tax that will discourage capital investment.

Unlike an income tax, Harris' new wealth tax would work like this. Households with assets over $100 million would pay an annual minimum tax of 25 percent of their total income and unrealized capital gains. Let's say you buy stock for $10 per share. In the first year, the value doubles to $20, but you still keep the stock. Even if you didn't sell it, that $10 gain would be subject to the new tax.

It would be the same with real estate. You buy a house, a building or a piece of land. The increase in value over time would be taxed every year, even if you still own the property. We have never had a tax on gains that are not “realised” – that is, sold. In that respect, this new tax would be groundbreaking, a point we will come back to.

Politics aside, there are a ton of administrative issues. How do you go about valuing everything each year that is going to be taxed? Stock in public companies would be straightforward. But most assets could be a nightmare, and who gets to come out on top in terms of value? Disputes over value in tax cases are legendary and extensive. Almost every estate tax case with the IRS involves valuation disputes, often with competing experts. In income tax cases, charitable donations of tangible assets like real estate or cryptocurrencies often end up in major valuation battles as well.

Just imagine what annual tax returns might look like in a world where the increase in value since last year is converted into taxes. Capital gains have always been taxed at a lower rate, not a higher rate. And with the exception of inheritance tax, which is levied on death, it has been almost sacred not to pay taxes on “income” that you have not received.

And what if the value soars one year, you pay taxes on it, and the next year it crashes? You still have the now worthless asset and can't sell it for much money. So why the outrageous measure of taxing something before its time?

What's the scariest part of this idea? What if this opens the door to a more general attempt by the government to tax you for something you still own? Currently, the proposal is to apply this wealth tax only to the truly rich. Not just billionaires, but also anyone who owns at least $100 million.

If we go down this path, could we be faced with such a tax in a few years on someone who has $20 million, $10 million, or even $1 million? You get what I mean. Even the “billionaire tax” that hits anyone with $100 million could be challenged in court based on what the U.S. Constitution says about the government's power to tax. The Supreme Court has not yet fully ruled on such a question, although a recent signpost came in a 2024 tax case. Moore vs. the United Statesin which the Supreme Court upheld a tax on undistributed foreign assets.

The chances of this wealth tax passing are slim. Harris would have to win and both the Senate and House would have to be controlled by Democrats. In any case, this proposal could mark the beginning of new and upcoming taxes. Read more about Harris' big plans for your taxes.