Kamala Harris Dons a Capital-Gains Tax Disguise

She’d raise the rate by nearly 40%—to its highest level since the 1970s

WSJ editorial. 

"We’ve seen many presidential campaigns, but this is the first in which the candidate proposing a huge tax increase is pitching herself as a supply-side tax cutter. That’s what Kamala Harris is trying to float past voters, and so far she’s getting away with it.

“If you earn a million dollars a year or more, the tax rate on your long-term capital gains will be 28% under my plan, because we know when the government encourages investment, it leads to broad based economic growth,” Ms. Harris said to cheers in New Hampshire. Give her credit for knowing how to win plaudits from rich donors.

Mark Cuban told CNBC she is “going center 100%” by talking “more about entrepreneurs and helping them have access to investment.” She does talk a good game. And the press is hailing her tax “moderation” because President Biden has proposed raising the top capital gains rate to 44.6%.

The truth is Ms. Harris is still proposing to raise the capital gains rate by nearly 40%, which would slam entrepreneurs. The 28% rate she’s talking about is misleading since she also backs a five-percentage point surcharge on investment income. Her plan would raise the top capital-gains tax rate on taxpayers making more than $1 million to 33% from 23.8%.

That would be the highest rate since 1978, when Congress passed the famous Steiger Amendment, reducing it to 28% from 35%. The history of the capital gains rate underscores how far left Ms. Harris and the Democratic Party have moved on taxes.

After Jimmy Carter signed the Steiger cut, Ronald Reagan struck a deal with Democrats in 1981 to further reduce the rate to 20%. A 1986 tax bill raised the rate back to 28% as part of a reform that cut the top rate on ordinary income to 28% from 50%. The capital-gains rate hasn’t exceeded 28% since.

Bill Clinton agreed to a tax package with Republicans in 1997 that lowered the rate to 20%, which helped fuel the economic expansion. George W. Bush in 2003 slashed the rate to 15%. The rate under Barack Obama rose to 23.8% in 2013—20% plus his 3.8% surtax. He later proposed raising it to 28%, though it didn’t pass Congress. 

Even many liberal economists say increasing the rate above 28% would result in lower tax revenue by reducing realizations. Notably, income tax revenue as a share of GDP has increased after every capital-gains rate cut over the last five decades. Lower rates encourage investors to realize more gains and plow them into other ventures.

This allows capital to flow to more productive and beneficial uses. It’s also one reason the U.S. has birthed so many successful tech companies. Ms. Harris’s Silicon Valley donors such as LinkedIn founder Reid Hoffman understand all this, which is why they have been urging her to repudiate Mr. Biden’s capital-gains rate.

Still, Ms. Harris hasn’t renounced the Biden plan to tax unrealized investment gains, which means taxing an increase in the value of an asset even without a transaction that yields income. Don’t sell a stock and you still get taxed if the share price rises, but would you be able to deduct unrealized losses? Mr. Biden called for a 25% tax on appreciation in assets for “billionaires” with net worth over $100 million.

No less than Rep. Ro Khanna this week slammed the idea. “Let’s say you’re an entrepreneur, you create a company, it gets to $100 million or $200 million on paper. Now if you’re taxing that, you’re probably going to force that person to sell it,” the Silicon Valley Democrat told CNBC. He’s right.

Ms. Harris’s 33% rate would also punish entrepreneurs who sell their businesses after years of sweat equity. Many Americans who make more than $1 million are “rich” for only a year or two. A higher tax rate would reduce the return on their investment and act as a disincentive to start a business.

Her ballyhooed proposal to increase the tax deduction for startup expenses is small salve. We have to chuckle at the press’s presentations of her as a champion for small businesses even as she plans to smother them with more regulations and tax increases on Subchapter S businesses, small and large.

Donald Trump could explain all of this to voters, though he’s also now clouding his tax ideas with nationalist nonsense. In a speech Thursday, he touted plans to reduce regulation and increase energy production. Great. But then he endorsed cutting the corporate tax rate to 15% “solely for companies that make their product in America.” That’s merely a new form of industrial policy.

How about reviving a proposal his advisers floated when he was President to index capital gains for inflation? He won’t beat Ms. Harris by racing her to the populist bottom."