In a campaign mainly lacking in detailed policy proposals, Vice President Kamala Harris quietly introduced her most comprehensive plan yet this week: a proposal for nearly $5 trillion in tax increases over the next decade. The Democratic presidential nominee unveils her first revenue-raising policy, contrasting her approach with that of her Republican opponent.
Vice President Kamala Harris, as the Democratic Party’s 2024 Presidential nominee, has not yet presented a comprehensive tax plan. Fordes contributor Robert Wood explains that her current approach combines:
Adopting elements from President Biden’s recent budget proposals
Introducing some new ideas of her own
Drawing on aspects of her 2020 presidential campaign platform
On August 16th, Harris outlined her economic vision, including tax policy, in a speech in North Carolina. She has since elaborated on her tax stance through various statements.
While many of her positions align with President Biden’s agenda, Harris has also hinted at some unique perspectives. Observers are piecing together her likely tax policy from these various sources.
This significant revenue boost would result from a series of tax hikes initially proposed by President Biden in the spring. Harris’s campaign confirmed this week that she supports these increases, which were thoroughly outlined in the latest federal budget plan from the Biden administration. With Harris officially nominated, tax policies have become a central issue in the presidential race. She and her Republican rival are promoting different approaches to appeal to voters. Major news outlets like the NYT and CNBC are now analyzing Harris’s proposed taxation strategy and its intended outcomes.
What Are Harris’s Key Tax Proposals?
According to NYT’s reporting under Kamala Harris’s tax plan, no one earning less than $400,000 a year would see a tax increase. Instead, the plan targets significant tax hikes for the wealthiest Americans and large corporations. Many of these proposals have been rejected by Congress, even when Democrats had control.
While tax policy is not the main focus of the current presidential campaign, it will become a key issue in Washington next year. The next president will need to collaborate with Congress to address the 2017 tax cuts implemented by Donald Trump, many of which are set to expire after 2025. If no agreement is reached, millions of Americans could face higher taxes. According to Fox Business, Harris’ tax plan announcement would also constitute a major rollback of the 2017 tax cuts, the signature domestic legislation passed during former President Trump’s administration. Here’s a look at what we know—and what remains unclear—about Harris’s tax views. Harris’s campaign fiscal policies include:
Tax Credits for Housing Developers
Increasing corporate tax rates
Eliminating taxes on tipped income
Expanding child tax credits
Raising taxes on Corporations
Harris has proposed increasing the corporate tax rate from 21 percent to 28 percent. Under Trump’s Tax Cuts and Jobs Act (TCJA), the corporate tax rate was reduced to a flat 21 percent, down from 35 percent during Barack Obama’s presidency. According to Harris campaign spokesperson James Singer, this adjustment aims to “fiscally responsibly return money to working people while ensuring that billionaires and large corporations contribute their fair share.”
Vice President Harris has endorsed the Biden budget’s tax increases, including raising the tax on stock buybacks from 1 percent to 4 percent. This tax was first introduced by Democrats in 2022 as part of the Inflation Reduction Act. Additionally, the legislation mandates that large companies pay a minimum tax of at least 15 percent on the income they report to investors, aiming to prevent companies from reducing their tax liability to zero through deductions and credits. Harris’s campaign, aligning with Biden’s budget, now advocates for increasing this minimum tax to 21 percent from 15 percent.
Harris’s tax plan includes a proposal to equalize offshore and domestic corporate income tax rates, effectively targeting foreign tax havens. This approach aims to close loopholes that allow corporations to reduce their tax burden through international structures. While such measures likely encounter strong resistance in Congress, they reflect Harris’s assertive position on corporate taxation. These proposals signal her intent to challenge both corporations and individuals who use complex organizational arrangements to minimize their tax obligations. The strategy underscores a broader effort to ensure that multinational corporations contribute their fair share to the U.S. tax base.
Tax on Unrealized Capital Gains
Yahoo News recently reported that the Kamala Harris campaign has unveiled its first major policy proposal: a comprehensive tax plan targeting high-income earners and corporations. This plan aligns with President Biden’s earlier budget proposal and aims to raise approximately $5 trillion over a decade through various tax increases. A standout feature of this plan is a novel approach to taxing unrealized capital gains. Under this proposal, households with a net worth exceeding $100 million would face an annual minimum tax of 25% on their combined income and unrealized capital gains. This particular plan aspect has garnered significant attention and debate among policymakers and economists.
This “wealth tax” addresses the issue of wealthy households avoiding taxation by living off unsold assets. However, taxing unrealized capital gains presents challenges:
- It taxes value that hasn’t been actualized through a sale
- Asset-holders may pay taxes on value they never receive
- This could discourage long-term investments by wealthy individuals
These factors make the proposed tax controversial and complex.
Unrealized capital gains represent the increase in an asset’s value over its cost basis (usually the purchase price) while it remains unsold, essentially reflecting potential theoretical profits. For instance, if you buy a stock at $10 per share and its price rises to $12 without selling, that $2 increase is an unrealized gain. Although your net worth has grown by $2, this value is still subject to change as long as the stock remains unsold.
In contrast, realized capital gains occur when an asset is sold for more than its cost basis. The profit from this sale is considered the realized gain.
Realized gains have a definite, recorded value, representing the outcome of a completed transaction, while unrealized gains are variable and reflect the asset’s current value at any given time. For example, if your stock is valued at $12 per share on July 1 and you sell it for $14 per share on August 1, you’d have a $2 unrealized gain on July 1 and a $4 realized gain on August 1.
Capital gains apply to all capital assets, including financial securities (stocks, bonds, crypto, etc.) and real estate, the most common examples. “This would be the most crazy tax structure we have ever seen. It makes Venezuela look normal. It makes Russia look normal,” Newt Gingrich told Fox Business. “That speech last week in Raleigh, where [Harris] outlined her economic plan, that was crazy. That was so far to the left of Bernie Sanders that Gorbachev in Russia would have thought it was a radical speech.”
According to a Peter G. Peterson Foundation analysis, the combined unrealized gains tax and the significant capital gains tax increase are expected to generate nearly $800 billion in new government revenue. The proposed “billionaires-minimum tax” could significantly impact individuals like Elon Musk, whose wealth is largely tied to their stock holdings.
Higher Rates Up To 39.6% for High-Earning Households
Harris’s tax plan targets high-income Americans through two main strategies:
- Increasing existing income tax rates: • Raising the top marginal rate to 39.6% from 37% • Increasing Medicare surtaxes to 5% from 3.8% for those earning over $400,000 • Expanding income subject to one of these surtaxes • These changes could create a top marginal rate of 44.6%
- Reshaping investment gains taxation for the wealthiest: • For those earning over $1 million annually, investment earnings would be taxed at the same rate as regular income, eliminating the lower capital gains rate
The controversy here focuses on changing the long-term capital gains tax from 20% to 45%. Long-term cap gains taxes are taxes on any gain sold after holding > one year. Short-term cap gains taxes are taxes on any gains sold after holding < one year.
*Currently For 2024*
Long-term capital gains tax brackets are 0%, 15%, or 20%, depending on taxable income and filing status. Short-term capital gains are taxed according to your ordinary income tax bracket. Biden’s proposal suggested something new for 2025.
The proposal for 2025 is adding a 4th column to the long-term capital gains tax.
But note: This new tax is only applicable to people who make > more than $1M/year in income.
On pg. 80, in the footnotes of the actual proposal, the 44.6% long-term capital gains tax is mentioned. This is a combination of the top ordinary rate being 39.6% and the new “NIIT” income tax being raised to 5%.
new top ordinary rate + new NIIT tax
= 44.6% potential LT capital gains tax
(unclear is single vs household)
These changes aim to alter the tax landscape for wealthy Americans significantly.
Estate Taxes Increases: Closing the Step-up in Basis Loophole
The White House tax plan aims to close what some Democrats view as a significant tax loophole: the “step-up in basis.” Currently:
- Capital gains taxes are owed only when an asset is sold, not when inherited
- Heirs don’t pay taxes on an asset’s appreciation prior to inheritance
- Inherited assets are only taxed on gains from the time of inheritance, and only upon sale
This system allows significant wealth to transfer between generations without taxation, which the new plan seeks to address. Current tax regulations allow accumulated capital gains to be transferred between generations without incurring taxes, typically through mechanisms like the stepped-up basis at death.
Harris’s Financial Transaction Tax Proposal
During her 2019 Medicare for All campaign, then-Senator Harris introduced a financial transaction tax plan:
- 0.2% tax on stock trades
- 0.1% tax on bond trades
- 0.002% tax on derivative transactions
This proposal was positioned as an alternative to Senator Sanders’ suggested 4% income-based premium on households earning over $29,000, which Harris argued would overly burden middle-class families.
Harris projected that this tax, combined with her plan to tax offshore corporate income, could raise over $2 trillion in 10 years. She claimed this revenue would fund Medicare for All without increasing taxes on middle-class households.
Would you like more information on how financial transaction taxes typically work or their potential economic impacts?
Child Tax Credit Expansion
Harris’s plan aims to revive and expand the child tax credit that was temporarily increased during the COVID-19 pandemic. In 2021, the Biden administration’s American Rescue Plan Act had raised this credit from $2,000 to $3,600 per child. Harris proposes to go even further by offering families with newborns a total of $6,000 in tax relief during the baby’s first year. During a policy speech in Raleigh, North Carolina, Harris emphasized this point, stating, “We will provide $6,000 in tax relief to families during the first year of a child’s life.” This proposal represents a significant expansion of support for families with young children, potentially addressing financial challenges associated with early parenthood.
Tax Credits for Housing Developers
In her August 16 speech, Vice President Harris addressed the pressing need to resolve the nation’s housing crisis. She outlined two key tax proposals aimed at developers. First, Harris suggested introducing a new tax credit to encourage the construction of “starter homes” to make first-time home ownership more accessible. Additionally, she proposed expanding an existing tax credit for developers who build affordable rental properties, aiming to curb the escalating costs of renting. These measures reflect Harris’s strategy to tackle housing affordability from both the homeownership and rental perspectives.
Conclusion
Harris’s commitment to the White House budget provides insight into her revenue-raising strategy for a potential presidency. However, several key tax issues remain unaddressed, particularly regarding the expiring provisions of the Tax Cuts and Jobs Act. These include broader standard deductions, lower marginal income rates for many Americans, and generous deductions for certain business owners. Harris pledges not to increase taxes on those earning less than $400,000 annually, suggesting she intends to extend much of her Republican rival’s signature legislation. This extension could consume a significant portion of the estimated $4 trillion cost of continuing all lapsing provisions. While Harris’s campaign emphasizes deficit reduction, her proposed tax cuts and spending plans, including an enhanced child tax credit, could potentially cost around $2 trillion over a decade, according to the Committee for a Responsible Federal Budget. This creates a complex fiscal landscape, balancing the need for revenue with promises of tax relief and increased spending, all while aiming to manage the deficit.
As we draw closer to Election Day, it’s likely that Harris will further refine and expand her tax policy platform. There’s potential for additional progressive proposals to emerge as she continues to articulate her vision for the country’s fiscal future. Voters and policy analysts should stay attentive to new announcements or policy details that may be released in the coming months, as these could provide a clearer picture of Harris’s comprehensive tax strategy and its potential impact on various sectors of the economy and different income groups.
