Democrat presidential candidate Kamala Harris has confirmed her support for $5 trillion in tax increases over 10 years in the Biden-Harris administration’s proposed budget. What should be truly terrifying to any taxpayer is the fact that the total increase is not the worst thing about Harris’ plan.
Among the many and varied tax hikes Harris and running mate Tim Walz endorse is a big increase in the top tax rate on capital gains. “[T]he proposals would increase the top marginal rate on long-term capital gains and qualified dividends to 44.6 percent,” an explanation of the Biden-Harris budget states. The top tax rate on capital gains held for more than a year is currently 20 percent, for those with taxable income above $518,000. The tax is paid only if the individual sells the assets.
Capital gains taxes are not indexed for inflation, so the tax bite will rise dramatically whenever the Federal Reserve increases the money supply to cover the rapidly rising U.S. government debt, which is inevitable under all believable current scenarios. People will be paying real taxes on imaginary increases in capital gains. That extra tax cost will lower the value of the affected assets. If you own stocks, land, or other valuables, the Harris-Walz tax hike will reduce their value.
Even more egregiously, “The Harris-endorsed budget calls for an annual 25 percent minimum tax on the unrealized gains of individuals with income and assets exceeding $100 million,” Americans for Tax Reform notes. “Once in place, it won’t be long before the threshold is lowered to hit more and more Americans.”
This tax would have enormous consequences for people in all income brackets, not just the super rich. It will do its destruction by causing a massive net reduction in personal wealth in the United States.
Here’s how that will happen if the Democrats’ plan comes to fruition. The Harris-Walz wealth tax will reduce the value of all capital-gaining assets by imposing an unavoidable, government-enforced new cost on them — the annual cost of the tax.
Limiting the tax to the very wealthy is immaterial, because reducing the investor demand for a particular supply of assets will necessarily reduce the prices of those assets — which is their value. When those less-valuable assets are sold to other people, they will bring artificially reduced prices. That is wealth destruction.
The proposed wealth tax would thus decrease the values of stocks; housing and other real estate; bonds; personal property, such as automobiles, boats, some jewelry, and art works; and so on.
“That is how you trigger what you call a downward spiral in asset prices,” said entrepreneur and investor Vivek Ramaswamy. “It’s the best formula for triggering the Second Great Depression, if we ever had one.
As if widespread market crashes were not bad enough, the knock-on effects could be tragic. By crashing the asset markets, the Harris-Walz wealth tax will destroy the retirement nest eggs of the Baby Boomers and Generation X. With the Social Security system already facing insolvency, this asset crash will have a terrible effect on the elderly. Starvation, homelessness, and countless other ills could proliferate.
Meanwhile, the superrich at whom the taxes were aimed will maximize their wealth by trading capital-gains-producing items for other assets with lower gains and hence less economic value. The prices of those assets will rise, of course, creating further economic distortions.
The general movement in the economy will be from high-value uses of resources to lower-valued ones. People will move their money from the most profitable enterprises to those that cost them the least after taxes.
The enterprises these investors will abandon for tax purposes, however, were more profitable because the public received more value from them than others. Investment thus moves away from highly desired, high-value-added, economically efficient activities to ones that generate less wealth — or none at all, or losses. Resources and human effort are wasted, and wealth is destroyed.
Thus, the Harris-Walz wealth tax will create enormous, ever-compounding economic distortions that move resources away from their best and most efficient uses.
On top of all that, the tax will decrease federal revenue, not increase it. Many of the richest Americans may move out of the United States and renounce their citizenship, depriving us of our most economically successful people — who got that way by increasing the production of goods and services more than others did.
The federal government will attempt to force them to pay up, but it will not succeed. The wealthiest people always find a way to avoid paying the most economically damaging taxes. The federal treasury will lose the tax revenue those emigrants are currently paying. The less-wealthy will have to pay higher taxes to make up for those losses, even if Congress tries to kick the can down the road by borrowing the money, because interest payments on the debt will rise. That will further suppress economic growth — and tax revenues.
All the damage the tax would cause would neither raise federal tax revenues nor punish the wealthy.
This unprecedented and probably unconstitutional tax scheme would bring on many other harmful effects. The full destructive power of the Harris-Walz wealth tax is unknowable, though its overall outcome is clear: a massive economic contraction and an awful and unnecessary reduction of the standard of living all across the country.