Kamala Harris’s campaign has confirmed that she supports the tax proposals that the, well, Biden-Harris administration unveiled in March. Attacking (alleged) corporate price-“gouging” has become one of the themes that the vice president hopes will take her to victory in November. She clearly believes that supporting government gouging will be another.
Starting with corporate taxation, rates would increase from 21 percent to 28 percent. Currently, the OECD average is a little under 24 percent. Raising the level paid by U.S. corporations to 28 percent (and that’s before considering state taxes) would damage their ability to compete internationally, hitting their growth prospects and by extension those of the U.S. as a whole, something that would hurt all Americans, not just those making $400,000 a year or more. Moreover, while increases in corporate taxes are, of course, technically paid by corporations, the real cost will be felt elsewhere, by their shareholders, customers, and workers as dividends are hit and companies look to offset higher taxes with higher prices and tighter control of wages and staffing levels. But it could have been worse. In her campaign for the Democratic nomination in 2020, Harris had called for the corporate-tax rate to be increased to 35 percent.
There are other attacks on American business included in the vice president’s plans for companies, including an increase in the minimum tax paid by the largest corporations from the 15 percent established in the Inflation Reduction Act to 21 percent, yet another a reminder that once a (relatively) modest change that increases tax is introduced, it tends not to stay modest for long.
On the income tax, Harris supports increasing the top rate from 37 percent to 39.6 percent for individuals earning $400,000 (and households making $450,000 — the marriage penalty is alive and well). On top of that, the Medicare tax would rise from 3.8 percent to 5 percent. That could create a top marginal rate of 44.6 percent (close to half of every marginal dollar, an affront to fairness), and, again, that’s before state taxes. Texas and Florida should expect more wealthy and wealth-creating arrivals.
$400,000 is, of course, still a lot of money but is less than it was in 2020, when candidate Joe Biden was touting that limit; $400,000 then is equivalent to around $486,000 now, but as is not infrequently the case with tax thresholds, it has not kept pace with inflation, a blow made more painful still by the higher inflation of the Biden years.
The onslaught on higher earners does not stop there. Capital gains on households earning more than $1 million a year would be taxed at the same rate as ordinary income. These gains would not be adjusted for inflation, meaning that people, particularly those who had invested for the long term, could find themselves paying taxes on “gains” that, after inflation, were far less than the sum on which they were charged tax. They could even end up paying a hefty tax on nominal gains that were, in real terms, losses. This is fair?
This change, too, would catch far more than plutocrats. Consider the business owner who for years has built up a successful small- or medium-sized business, drawing a fairly modest salary. But in the year he or she sells the business for, say, $2 million, the tax bill could well be extraordinarily high. If the government is looking for ways to discourage small business, this is one way to do it.
And homeowners, particularly in more expensive parts of the country, should watch out too. The capital-gains-tax exemption applicable on the sale of primary residences is $250,000 for an individual, $500,000 for a married couple. Above that, any gains will be taxed like any other capital gain, despite years of inflation (people tend to stay in their places for a while). The exemptions were fixed in 1997 and have not been increased since; $250,000 in 1997 is worth nearly twice that today.
The government gouging would extend into the grave. The capital-gains tax “break” under which the assets of the deceased were rebased to their value at the date of their death is to be swept away for gains of more than $5 million for an individual (or $10 million for a married couple). Oh yes, the Trump tax reform’s increase in the death-tax exemption is also set to end, meaning that it will fall from $11 million to $7 million in 2026.
And the very richest Americans — those with assets of more than $100 million — would have to pay a minimum tax of 25 percent on their income and unrealized gains, a levy that would operate as a wealth tax. This fails the test of fairness at several levels (for example, what happens when an unrealized gain one year is followed by an unrealized loss the next?), will pose an administrative nightmare, and, for those in the $100 million club, would represent an enormous loss of privacy. And anyone who thinks this tax would be confined only to the richest knows very little about the history of tax. Eventually this concept would start to, so to speak, trickle down.
These proposals (and others not mentioned here) together represent a massive assault on incentives to work harder, to save, to invest, to innovate, and to pass on the fruits of a lifetime’s effort to the next generation, incentives that have been key to America’s extraordinary success. If they are enacted, it is not only the wealthy who would be left poorer.