Falling in line with President Joe Biden’s tax plan, which would increase the capital gains tax to 44.6% and the unrealized gains tax to 25%, Vice President Kamala Harris vowed to support the plan if elected.
If adopted, the tax plan would bring $5 trillion in revenue over the next decade, allowing the U.S. government to address the growing deficit and potentially start reducing the ever-increasing debt, which recently surpassed the $35 trillion mark.
Who will be affected by Harris’s unrealized gains tax?
It’s worth noting that Biden’s proposed 25% tax on unrealized gains would solely affect individual taxpayers with over $100 million in net assets.
Furthermore, in outlining the new tax plan, Biden assured that individuals earning less than $400,000 annually would not face tax hikes.
This policy seeks to create a more equitable balance between high-earning individuals from ordinary income and those from investment income, ensuring that wealthier individuals contribute a fairer share relative to their substantial financial activities.
In addition to the unrealized gains tax, the new tax proposal also includes increasing the corporate tax rate to 28% from the current 21%, adding $1.3 trillion to the U.S. budget over the next ten years.
Potential economic implications of the unrealized gains tax plan
Economic consequences of the proposed unrealized gains tax plans seem far-reaching, as the combination of the corporate tax of 28%, unrealized gains tax of 25%, and 44.6% capital gains tax would make the U.S. the world’s highest total tax rate on corporate income in the developed world.
Furthermore, due to the Laffer Curve, which explains the correlation between the taxation rates and government tax revenue levels, the newly proposed plan could diminish the tax revenue in 36 U.S. states to the point that they don’t bring in any additional tax revenue.
The most significant tax increase in 40 years would still impact the working class, which Harris promised to protect from tax hikes. The proposed 28% federal corporate tax rate, when combined with state taxes, would result in the highest total tax rate on corporate income in the developed world, meaning that the working class would ultimately bear most of the cost through lower wages and fewer job opportunities
Another impracticality of the proposed unrealized gains tax would be estimating the amount to be taxed, as it is hard to determine the exact amount of appreciation or depreciation of a specific asset. This would result in gruesome work for the Internal Revenue Service (IRS).
How hard will it be for the proposed tax plan to come into law?
Passing the proposed tax plan might be an uphill battle for Vice President Harris. Depending on the outcome of elections that could see a restructuring of these legislative branches in Democrats’ favor, the plan is set to face stiff resistance in all the chambers of Congress and the Senate.
Still, even a Democratic majority doesn’t guarantee success, as there are plenty of examples of Congress rejecting previous tax plans even when Democrats were in the majority.
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