Capital gains and losses are the outcome of investing. Every investor wants a capital gain when they sell an asset, but occasionally losses will occur. You must hold an asset for at least a year-and-a-day for it to be considered a capital gain as compared to an ordinary or short-term gain. Simplistically, a capital gain occurs when the value of the asset is greater than when you bought it. A capital loss occurs when the value of the asset is less than the price you paid when you bought it. Gains and losses are divided into realized and unrealized. Currently, the Internal Revenue Service (IRS) only imposes a tax on gains that are realized. Capital gains tax for the wealthy is at 15%. Harris supports that being raised to 25% minimum tax on unrealized gains for individuals with assets that exceed $100
million.
According to a recent analysis by Americans for Fairness, U.S. billionaires and centi-millionaires held at least $8.5 trillion in unrealized capital gains in 2022. Without further enlightenment, public opinion strongly favors the idea of a billionaire wealth tax. A survey conducted in March, 2023 by Data for Progress found that 87 percent of Democrats, 68 percent of Independents and third-party voters, and 51 percent of Republicans support a 25 percent tax on billionaire wealth. What would happen if the IRS
started taxing unrealized gains?
The proposed change that targets unrealized capital gains has drawn considerable criticism. According to Siri Terjesen, a professor and associate dean at Florida Atlantic University’s College of Business said it would serve as a “kill switch” for entrepreneurs by “discouraging investment and draining capital.” Thi could “increase the top marginal rate on long-term capital gains and qualified dividends to 44.6 percent,” the Treasury Department said.
An example of an unrealized gain would be the following: Say you bought a hundred shares of stock in a company whose price per was $25. That would cost you $2,500. Now say the share price increased to $40. The value of those share would not be $4,000, which would result in an unrealized gain of $1,500 ($4,000 - $2,500 = $1,500). Since the value of these shares could go up or down over time, would it be fair to impose a tax on the unrealized gain before you sold the asset? The logical answer would be no.
Harris’ stance on taxation did not go down well with most on Wall Street. Fund Strat Head of Research. Tom Lee, said, “This is a very unstable tax policy. It would be the opposite of creating incentives to be long-term oriented.”
A Bitcoin buyer made the observation, “If you buy a Bitcoin at $50,000 and it goes up to $70,000 but you don’t cash out the Bitcoin… you still owe tax on the $20,000 capital gains.” New Street Research’s, Pierre Ferragu, warned, “A tax on unrealized gain is IMPOSSIBLE to implement….” Either the candidate who proposed this is either “(1) too dumb to understand this or (2) considers their voters too dumb to understand this.”
Kamala Harris, the U.S. Democratic presidential nominee should be required to defend her position on the publicly-endorsed billionaire wealth tax known as the tax on unrealized capital gains. My guess is that those promoting the tax are the people not required to pay it while the overwhelming majority of those who would be required to pay it would be opposed to it. One thing is for certain, Kamala Harris is exploring every avenue she and other proponents of the billionaire tax can think of to raise taxes on the wealthy.
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