Over at Semafor, we read the following:
US Vice President Kamala Harris proposed a smaller increase to capital gains tax than her boss Joe Biden. Biden’s 2025 budget planned to raise the top tax from 24% to 40%, but Harris said in a speech that she believes this is too high, proposing a raise to 28%. She also posited increasing corporate tax rates from 21% to 28%. The Democratic presidential nominee is continuing to establish herself as a moderate, CNN reported, with tax cuts for small businesses alongside expansions of child tax credit. She has also played up patriotism, law and order, and support for the military, attempting to boost her centrist credentials.
Moderate? Centrist? This would be funny if it weren’t so wrong. The baseline for comparison to judge Harris should not be Biden’s economically destructive proposals but rather the current situation. Better yet, her proposals should be compared with where capital tax rates ought to be—which, from a perspective favoring not damaging economic growth and efficiency, is significantly lower than present levels.
The top marginal rate on long-term capital gains is currently 23.8 percent (which includes the 3.8 percent net investment income tax). The 28 percent rate is without the additional surtax on investment income. Yesterday, some reported that she wants an all-in 33 percent rate, which suggests that she supports raising the NIIT to 5 percent like Biden proposed. In other words, the increase she wants is from 23.8 percent to 33 percent.
The new rate would be a substantial tax increase, especially considering that the capital-gains tax is effectively a double tax on corporate income and hence extremely punishing.
It also would make us even more uncompetitive than we already are. From the Tax Foundation:
On average, in the OECD, long-term capital gains from the sale of shares are taxed at a top rate of 19.1 percent, and dividends are taxed at a top rate of 24.4 percent.
Also, a bunch of countries do not tax long-term capital gains on most assets.
Let’s not forget that Harris also wants to raise the corporate-income tax rate from 21 percent to 28 percent (notably, in 2019 she supported an even higher increase to 35 percent). This seven percentage point increase represents a 33.33 percent hike in the tax rate. It also doesn’t include the state corporate tax rate (that’s another roughly 5 percent on average).
That increase in the corporate-income tax rate is far from a “moderate” position, especially when combined with the increase in the capital-gains tax rate.
As the Cato Institute’s Adam Michel told me, “A 33% federal cap gains, plus 28% corporate rate, plus state taxes puts us at a combined rate on distributed profits of roughly 58%.” He added that “a moderate proposal would be to cut the capital gains tax and corporate income tax rates to bring the US closer to the average rates of our largest trading partners.”
Before labeling Harris a centrist, it’s also crucial to consider her other policy positions. While her stances have been inconsistent, making it challenging to pin down her exact policy preferences, what we do know is hardly moderate. She has advocated bans on price-gouging at grocery stores as a misguided attempt to combat inflation and an enormous unpaid-for increase in the child tax credit and has supported most of the Biden administration’s proposed tax increases, including discussions of a tax on unrealized capital gains.
#NotaCentrist