Vice President Kamala Harris aims to tax unrealized capital gains as part of her economic plan.

Many economists join celebrities and businesspeople, like Shark Tank hosts Mark Cuban and Kevin O’Leary in slamming this idea.

Once again, Harris is revealing her penchant for ill-conceived policies that will throw the economy into turmoil, undermine job creators, and destroy wealth.

What’s happening?

Harris proposed a 25% tax on unrealized capital gains for those earning over $100 million. Known as the billionaire minimum tax, this is an idea she borrowed from President Biden’s FY 2025 budget.

VP Harris explained in a stump speech,

It’s just not right that those who can most afford it are often paying a lower tax rate than our teachers and our nurses and our firefighters. That’s why I support a billionaire minimum tax and corporations paying their fair share.

CNBC reports that, as of June 2023, 10,660 people in the U.S. have at least $100 million in assets. Realistically, do we believe this tax would stop at this level but trickle down the income scale?

What are capital gains and “unrealized” capital gains?

Capital gains are the increases in the value of an asset such as real estate or stocks. When a person sells an asset, such as a house or stock, the capital gains are the increase in the value from the price he or she paid for the asset and what he or she sold it for.

For example, if a woman bought a house for $200,000 in 2023 and sold it for $300,000 in 2024, the gain would be $100,000. When that value is converted into cash, these are realized capital gains.

Realized capital gains are generally taxable. However, if she does not sell the house, then the gains are unrealized and therefore not taxable.

Vice President Harris would begin taxing those unrealized gains, which would be unfair, costly, and an administrative nightmare for both the taxpayer and the government.

This is a bad idea for at least a few reasons:

  • Unfair: Taxing unrealized gains is taxing “paper gains” that are here today but may be gone next year. Think of the stock market, where investors can gain thousands in one year and lose even more the next due to market downturns. Would the government provide a rebate for taxes paid if all of the gains from one year are lost by the next?
  • Administrative nightmare: Imagine all of the paperwork that taxpayers and accountants would have to prepare and the IRS review to track the gains each year.
  • Costly: If unrealized real estate gains are subject to new taxes, how would property owners get the cash to pay those taxes? The assets are not liquid (cash). Would they take out a loan or pull from their savings? No matter how you slice it, that is costly.

Successful businessmen panned the plan

In an interview on CNBC, Shark Tank billionaire investor Mark Cuban blasted the plan:

What I told them is if you tax unrealized gains, you’re going to kill the stock market, and it’s going to be the ultimate employment plan for private equity because companies are not going to go public because you can get whipsawed.

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My own personal experience back from the internet days: all of a sudden… my net worth was enormous but the number of dollars in the bank wasn’t enormous. Based off the unrealized gains, I would have had to borrow money and I effectively would have been in hock just to pay my tax bill instead of trying to run my company.”

Fellow Shark Tank investor Kevin O’Leary criticized this plan for different reasons:

The idea of raising capital gains tax to this level is essentially making America uncompetitive. We’re the world’s number one economy, and much of that success comes from foreign capital choosing to invest here because we’re competitive. But if we suddenly increase our capital gains tax and corporate tax rate, it sends a message that America is no longer the best place to invest.”

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We do not want to punish American entrepreneurs,” emphasized O’Leary. The number one export from America isn’t a product or service—it’s the American dream. People from all over the world come here for that dream. If we start implementing policies that drive people away, we will have a real problem on our hands.

If wealthy investors pull out of the stock market, smaller investors with 401ks like middle-class workers will be affected. As a Wall Street Journal op-ed explains:

This would create a major incentive for the wealthiest Americans either to delist the public companies that they control or to keep their private companies from going public in the first place. If the ultrarich respond this way, it would reduce projected tax revenue and hurt all investors by shrinking the size of public markets.

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The shrinkage of public markets is a big deal for anyone with a 401(k), as 90% of U.S. investors don’t meet the minimum wealth and income requirements to invest in private markets. If Ms. Harris has her way, it could do irreparable harm to Americans’ ability to pay for their retirements. The left’s desire to punish the ultrarich for their success will end up hurting the rest of us.

Bottom Line

Taxing unrealized gains would kill the stock market for regular investors and destroy wealth among entrepreneurs and innovators. It’s a policy that will weaken the economy and place markets into a tailspin with likely damaging impacts on the economy.