Kamala Harris backs Biden's tax proposals - including a tax on unrealized capital gains

By Victor Reklaitis

One critic says taxing paper profits for wealthy would discourage investment and be a 'kill switch' for entrepreneurship, while supporters say current tax code is too lenient on rich

In the first few days of Kamala Harris's 2024 presidential campaign, experts told MarketWatch that her stances on taxes probably would closely resemble those of President Joe Biden.

One month into her campaign, it looks like that is indeed the case. Multiple published reports this week have said the Democratic presidential nominee supports the tax increases put forth in Biden's most recent budget proposal, which came out in March.

The Biden budget called for new taxes on wealthy Americans, corporations and business owners - including a controversial idea to tax unrealized capital gains as income for those with more than $100 million. An unrealized capital gain, also called a paper profit, refers to an increase in value for an asset that a person hasn't sold yet, whether it's a share in a business or a property.

Biden's Treasury Department said it's proposing "a minimum tax of 25 percent on total income, generally inclusive of unrealized capital gains, for all taxpayers with wealth (that is, the difference obtained by subtracting liabilities from assets) greater than $100 million."

Treasury officials offered their rationale for the proposed change, saying the country's current approach with unrealized capital gains "disproportionately benefits high-wealth taxpayers and provides many high-wealth taxpayers with a lower effective tax rate than many low- and middle-income taxpayers." They also said the current approach "exacerbates income and wealth disparities" and "produces an incentive for taxpayers to inefficiently lock in portfolios of assets and hold them primarily for the purpose of avoiding capital gains tax on the appreciation, rather than reinvesting the capital in more economically productive investments."

But the proposed change that targets unrealized capital gains has drawn considerable criticism.

It's "among the worst ideas in the Biden administration's proposed budget," said Siri Terjesen, a professor and associate dean at Florida Atlantic University's College of Business.

It would serve as a "kill switch" for entrepreneurship because it would end up "discouraging investment & draining capital," she wrote. Terjesen's comments came in social-media posts last month and in an opinion column for the Daily Signal, a conservative website.

Republican politicians have blasted taxing unrealized capital gains, with Arizona GOP Senate candidate Kari Lake saying in a social-media post that it "would cripple innovation & economic growth." Lake is a prominent ally of Republican presidential nominee Donald Trump.

The Institute on Taxation and Economic Policy, a left-leaning think tank, is among the organizations that support taxing paper profits.

"By not taxing unrealized capital gains, our tax code is more lenient on extremely wealthy people who are more likely to have this type of income than most of us who pay taxes on income from work as we earn it," ITEP said in a blog post last year.

Biden's most recent budget proposal features other ideas related to capital gains. Other plans would "increase the top marginal rate on long-term capital gains and qualified dividends to 44.6 percent," the Treasury Department said.

The Harris campaign didn't immediately respond Wednesday to MarketWatch's request for comment.

But a Harris campaign official told MarketWatch earlier this month that investors should look to the recent budget, and not stances taken by Harris before her time as vice president, as a guide for her policy preferences.

Harris is due to give her much-anticipated acceptance speech at her party's convention in Chicago on Thursday night. Biden withdrew from the White House race on July 21 and quickly endorsed his vice president, who then formally secured the Democratic nomination in early August.

Biden's various budget proposals, released in March, were not expected to find much traction in the Republican-run House of Representatives.

Similarly, if Harris is elected president but Republicans control one or both chambers of Congress, many of her proposals would face a tough path to becoming law. And even with Democratic control of both chambers in 2021 and 2022, the Biden-Harris administration struggled to get sufficient support for some of its priorities.

Related: Supreme Court sides with government in tax case focused on paper profits

-Victor Reklaitis

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08-21-24 1347ET

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