America’s economy has been the main hindrance to Vice President Harris’s campaign. The inflation and shortages of the past four years, whether fairly or not, are associated with her tenure. So why is she doubling down on President Biden’s final fiscal year budget with some of his administration’s most contentious economic proposals? Many social media and news feeds today are flooded with analysis of a plan to implement a 25% unrealized capital gains tax, generating mass confusion and frustration. But what even is an unrealized capital gain tax?
Suppose you bought $100 worth of Microsoft stock a few years ago. Then, Microsoft invested heavily in artificial intelligence. The market would consequently become excited about the revenue that AI will likely produce. As more people vie to purchase Microsoft’s stock, current owners can sell their portion of the company for higher prices. People want the stock to such a high extent that they will pay a premium. What may have been an initial investment of $100 could now be worth $150. If you wanted to use this $50 appreciation to purchase something, you would sell your portion of the company. Once you sold it, the government would tax the $50 you made. This is referred to as a realized capital gains tax, with “realized” meaning that you actually have $50 more in your bank account.
But instead, assume you did not want to sell your portion of Microsoft yet. Your shares still appreciated, making your portion of the company worth $150. That increase in wealth, however, is not yet reflected in your bank statements. An unrealized capital gains tax would mean that the government could still tax you on the appreciation of your assets, even if you have not sold them yet. Notice how even though you do not have $50 more in your bank account, you are taxed as if you did.
In President Biden’s budget for Fiscal Year 2025, he proposes a 25% unrealized capital gains tax for Americans with $100 million or more in assets. I want to highlight something here: Biden’s administration put forward this proposal, not Harris specifically. I’ll return to that idea in a second.
Why would a tax that seemingly affects so few people be so controversial? After all, there are very few Americans with $100 million or more in assets. You may think this policy would not impact your financial security as long as you never accrue that much wealth. In fact, you might even be applauding a tax that has a facade of putting the responsibility of generating government revenue on the backs of the ultra-wealthy. Unfortunately, if this tax were implemented, you would be impacted.
To pay for a 25% tax on unrealized capital gains, the owners of these assets would presumably have to do large sell-offs. When anything is sold in bulk, its price plummets. For example, if another person in the market owned $100 million worth of Microsoft stock that appreciated to $150 million, they would have to pay the government $12.5 million, or about 8% of their shares. While that sounds like a small percentage, it is a massive amount of supply for investors eager to add Microsoft to their portfolio. As these shares begin to enter the market in high quantities, the price of stock falls. All of the primary owners of Microsoft releasing their stock to the market would be compounded by smaller owners, who are scared of devaluation, also trying to sell. A spiral of more and more stock entering the market emerges, pushing prices downward.
The $150 of Microsoft you owned would not be worth $150 anymore. People who were once willing to pay top dollar for any portion of the company can get shares cheaply from investors trying to leave the market. Even for Americans not worth $100 million, their assets will be devalued in an exceedingly volatile stock market. This is the place where Americans prepare for retirement, make sure their kids lead a more prosperous life, and move up to higher socio-economic strata. Unrealized capital gains taxes make an avenue to financial stability exponentially less reliable.
There is a lot of frustration with this policy in the media right now. If you couldn’t tell already, I do not support this proposal. But unlike how this policy is being discussed in the news, I am not worried about it coming to fruition. I do not think there would be enough bipartisan support for an unrealized capital gains tax to pass through Congress. And most every news source knows that this will not be a reality any time soon.
It may seem odd that Harris is getting so much heat for her support of an unrealized capital gains tax. She didn’t come up with the policy. She is merely supporting the President. And, an unrealized capital gains tax is so unlikely that it doesn’t warrant this much attention from the media. This story is popular because it neatly fits into growing American sentiment that Harris is not best equipped to handle the economy. On the other hand, supporting this tax represents everything wrong with Harris’ policy platform. She perpetually contradicts herself by heralding ill-planned and regressive ideas.
If Harris is trying to build an economy that works for the middle and working classes, why is she supporting a policy that would get in the way of a vehicle for social mobility? If Harris is trying to protect social security and elderly Americans, why is she supporting a policy that would be detrimental to so many retirement plans? If Harris is trying to make housing more affordable, why does she support an unrealized capital gains tax that does not apply to real estate, effectively making investment properties more lucrative?
Harris has tried to distance herself from Former President Trump by saying she is focused on the future. She has portrayed her opponent as stuck in the past. Yet if this is true, why is her campaign endorsing the policies of an establishment administration wildly unpopular with Americans? Furthermore, if she is a proponent of change, why is her campaign built off of policy proposals that will never make it out of Congress?
There are two possible answers to all of these questions: Harris either truly does not understand economics, or her policy proposals are simply focused more on virtue signaling than improving our country. I find it hard to believe the first answer. As a Vice President and presidential candidate, Harris has access to some of the most knowledgeable economic minds in the world – minds that can talk about unrealized capital gains taxes with far greater specificity and accuracy than I can. I find the second option far more likely. Coming off a failed presidential bid in 2020, Harris feels immense pressure to say whatever pleases the electorate.
Saying what the people want to hear gets you the job. The electorate wants their services increased, and their taxes decreased. If that means someone else has to pay more, so be it. Harris has to appeal as much as possible to those ideals to win. But with economic policies so disastrous in their potential implications, she has to have the backbone to say no. If she is already prioritizing the electorate’s idealism over practical considerations, could she possibly be an effective leader of the free world?
Image by GPA Photo Archive from Flickr
