The Biden-Harris administration’s proposed 2025 budget is causing grave concern across the financial sector, with its most controversial element being a 25% minimum tax on unrealized gains for individuals with over $100 million in assets.
This proposal, endorsed by the Kamala Harris campaign, could have far-reaching disastrous consequences for the American economy.
Let’s break down what this means. Unrealized gains are increases in the value of assets you own but haven’t sold yet. This could include your home, stocks, or even collectibles.
While the tax is aimed at the ultra-wealthy, history suggests these thresholds often expand over time. Remember, the federal income tax initially affected less than 1% of households. Now it impacts nearly 75%.
But let’s focus on the immediate impact. There are about 10,000 Americans with wealth exceeding $100 million. If this tax were implemented, it could force these individuals to sell significant portions of their assets annually to cover the tax bill.
Take Elon Musk, for example. He owns over 20% of Tesla’s shares. If hit with this tax, he might need to sell billions in stock each year. Now, imagine this happening across the board with wealthy individuals and their companies. The market could be flooded with sell orders, potentially triggering a sharp decline in stock prices.
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This domino effect wouldn’t just hurt the rich. As Jim McTague, former Washington editor of Barron’s, once noted, “When the wealthy sneeze, the rest of us catch pneumonia.”
Earlier today, I asked @VivekGRamaswamy about reports that Kamala Harris supports a 25% tax on unrealized capital gains.
“That is how you trigger a downward spiral in asset prices. It is the best formula for triggering the second Great Depression.” pic.twitter.com/VHbOBgmaAB
— Daniel Baldwin (@baldwin_daniel_) August 22, 2024
Regular investors could see their portfolios shrink. Companies might face lower valuations, impacting their ability to raise capital or maintain their workforce.
Moreover, this tax could stifle innovation and economic growth. Many wealthy individuals are business owners and entrepreneurs. Forcing them to liquidate assets could mean less capital available for reinvestment in their companies or new ventures.
There’s also the question of fairness. As the Wall Street Journal editorial board pointed out, “Taxing unrealized gains means taxing income that doesn’t yet exist.” It’s like being charged for groceries you haven’t bought yet, based on what’s on your shopping list.
The potential for capital flight is another concern. Wealthy individuals might choose to relocate to countries with more favorable tax laws, taking their investments and job-creating potential with them.
While proponents argue this tax would ensure the wealthy “pay their fair share,” the unintended consequences could be severe. As economist Thomas Sowell once said, “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”
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Unrealized gains might seem like an easy way to generate revenue, it could ultimately prove disastrous for the American economy. From market instability to reduced innovation and potential job losses, the ripple effects could touch every American, regardless of their tax bracket.
