Kamala Harris’ Dangerous Plan for America

Finance InvestingOctober 7, 2024

IF YOU PAY FEDERAL INCOME TAXES, YOU MUST READ THIS!! I usually try to stay out of politics, but there is a dangerous idea being floated among the Democrats in our country that needs to be fought.

Vice President Kamala Harris has recently proposed a tax on unrealized capital gains—a concept that has sparked nationwide concern. On the surface, the idea seems like a reasonable way to ensure that the wealthiest Americans pay their “fair share” in taxes, particularly since they often accumulate vast wealth without actually selling assets. However, the potential consequences of such a policy are far-reaching and, in many ways, could set a dangerous precedent for all citizens.

Her proposal isn’t just about taxing the ultra-wealthy, it’s about creating a framework that could eventually affect every taxpayer.

Here is why regular citizens must understand the implications beyond today’s headlines and take action.

WHAT ARE UNREALIZED CAPITAL GAINS?

Unrealized capital gains refer to the increase in value of an asset—like stocks, real estate, or other investments—that has not been sold.

For example, if someone owns shares in a company, and the value of those shares doubles, that increase in value is considered an unrealized gain until the shares are sold.

Under current tax law, people only pay capital gains taxes when they sell the asset and thus “realize” the profit.

Vice President Harris’ proposal suggests that individuals should be taxed on these unrealized gains annually, regardless of whether they have actually sold their assets to receive any cash benefit.

THE FEDERAL INCOME TAX IS A HISTORICAL WARNING

A look at history offers a cautionary perspective. Politicians vilifying the rich to justify passing a ‘wealth tax’ is nothing new. Representative Cordell Hull of Tennessee said “I have no disposition to tax wealth unnecessarily or unjustly, but I do believe that the wealth of the country should bear its just share of the burden of taxation and that it should not be permitted to shirk that duty.” ¹

When the federal income tax was introduced in 1913, it was marketed as a tax that would only affect the wealthiest Americans.

In its initial form, less than 1% of the population paid federal income tax, with rates ranging from 1% to 7%. It seemed manageable, even justifiable—after all, who could argue against asking the wealthiest few to help fund government projects?

However, the scope of the income tax expanded over time. What was once a levy on the rich quickly became a burden shared by all citizens, regardless of wealth.

Today, nearly all Americans pay federal income taxes, and rates have climbed far beyond those originally envisioned. The lesson here is that a tax that begins by targeting the wealthy often grows into a tax that affects everyone.

This historical context is crucial for understanding why taxing unrealized capital gains could be similarly dangerous. Once the government establishes the precedent of taxing wealth that has not been converted to cash, there is little stopping them from expanding the program in the future.

VALUATION AND VOLATILITY CONCERNS

The logistics of taxing unrealized capital gains are full of challenges. The value of assets like stocks, real estate, or even art can fluctuate wildly from year to year. How does the government determine the value of an asset that hasn’t been sold?

For example, if someone holds stock in a company whose price increases dramatically, they would face a substantial tax bill even if they have no intention of selling those shares. If, in the following year, the stock price crashes, they are still stuck with a tax burden based on the previous inflated value.

This creates a scenario where citizens could be forced to liquidate assets just to pay the tax bill, even if those assets have since lost much of their value.

Additionally, wealth isn’t always liquid. Many investments are tied up in long-term projects, real estate, or shares that founders hold in startups.

Taxing unrealized gains could force people to sell off portions of their investments or seek loans just to cover tax liabilities, disrupting the financial stability of businesses and individuals alike.

A RISK FOR ORDINARY CITIZENS

The most significant concern with Harris’ proposal is the possibility of expanding the program beyond its initial targets.

Today, it might seem reasonable to tax billionaires for unrealized gains. But what happens once the system is in place? History shows us that once the government has a new source of revenue, the scope can easily expand to encompass the broader population.

Ask yourself—when was the last levy, tax, or toll the government instituted for a short period and then voluntarily shut down?

In the United States, the Revenue Act of 1916 instituted a federal estate tax that was initially meant to be temporary to help fund World War I, but was made permanent afterward.

Want another example—how about the New York Thruway? Tolls on this highway were scheduled to be removed in 1996. Not only are they still in place, but the state has been providing additional taxpayer funds to the Thruway Authority to prevent unpopular toll hikes. ²

Consider the average homeowner. Real estate values tend to appreciate over time, and in a system where unrealized gains are taxed, homeowners could be taxed on the increased value of their homes—even if they have no intention of selling.

This would disproportionately harm those living in areas where property values are rapidly increasing, potentially forcing people out of their homes due to rising tax burdens on paper wealth that does not translate to cash flow.

It may also affect elderly citizens who have lived in their homes for many decades and hold onto substantial equity.

The Democrats, who favor taxing unrealized capital gains, also state that they want to help people get into homes to live the American Dream. If this tax is passed and expanded, it may completely undo the American Dream.

ECONOMIC CONSEQUENCES

A tax on unrealized capital gains would also have significant economic repercussions. Investors, particularly those funding high-risk ventures like tech startups or biotech innovations, could become less inclined to put their money into these areas if they risk annual taxation without guaranteed returns.

Innovation, which often relies on patience and long-term investment, could take a substantial hit.

The incentive to invest in growing companies is predicated on the possibility of high returns after a successful exit or a major valuation jump. If unrealized gains are taxed yearly, the risk/reward calculus changes and the appeal of funding these ventures could diminish drastically.

This would potentially slow down innovation and hurt economic growth—affecting job creation and technological advancement that benefits society as a whole.

TAKE HEED

While Harris’ proposal to tax the wealthy on unrealized capital gains might sound like a way to “make things fair,” it is anything but.

Forcing the wealthy to pay their “fair share” was the argument that created the Federal Income Tax, which everyone now pays.

History has shown that what starts as a tax on the wealthy becomes a tax on everyone.

Even if Kamala Harris says she will only tax the wealthy, it doesn’t stop future politicians from expanding the program to include everyone.

Creating a new, creative tax is not the solution for our country’s debts. Instead of looking for new ways to tax its citizens, the government should focus on fiscal responsibility and reducing the national debt.

It is crucial for citizens to understand this slippery slope and to scrutinize policies that may sound equitable in theory but could lead to unintended consequences that threaten financial stability and economic prosperity for all.

“Those who don’t study history are doomed to repeat it.” –Winston Churchill

ADDITIONAL READING AND SOURCES

Signup For Our Newsletter

Signup for our newsletter to stay up to date with the newest financial trends

See How We Can Help You

With a combination of planning, consulting, and investing services, the Sterling team gives you all the resources you need to Plan Your Financial Future.

Get In Touch