What is Unrealized Capital Gains Tax? Unpacking the “economy killer” proposal for the ultra-rich.

Topline

Vice President Kamala Harris no longer supports President Joe Biden’s proposal to tax unrealized capital gains, billionaire Harris’ deputy Mark Cuban announced at a campaign event over the weekend, scrapping a controversial plan proposed by former President Donald Trump and his Employees unsurprisingly denounced the plan, although there was some criticism based on misinformation.

Vice President Kamala Harris attends a campaign rally in Georgia.

Getty Images

Important facts

The Democratic presidential candidate initially supported a plan first introduced by Biden in 2022 to impose a 25% minimum tax on unrealized capital gains of Americans with a net worth of $100 million or more, according to the Biden administration’s latest 2025 tax proposal , released in March Harris was a co-signer – which would change a fundamental principle of capital gains taxation in the US, but would affect only a small portion of America’s wealthiest population.

As a reminder, capital gains taxes currently only apply to physical and financial assets such as real estate, shares in listed companies and jewelry that have been sold for a profit and are therefore taxed as income.

This means that affected individuals would pay taxes on assets that increased in value over the course of a year, even if they had not sold, which conflicts with the current standard, which only imposes capital gains taxes on gains from those assets.

For example, if the world’s richest man, Elon Musk, saw his $102 billion stake in Tesla rise to $122 billion at the end of 2023 due to an increase in Tesla’s stock price, he would pay taxes on the $20 billion increase in value billions of US dollars to pay for his Tesla shares; Under current tax law, he would only have had to pay capital gains tax if he had actually sold his shares in the electric vehicle company.

According to estimates from Henley & Partners and New World Wealth, far fewer than 0.01% of taxpayers exceeded the $100 million net worth threshold to pay taxes on unrealized capital gains, as only 9,850 Americans were worth that amount or more at the end of 2023 were.

News Peg

Cuban, one of the 79 billionaires identified by Forbes as Harris supporters, called the unrealized capital gains tax an “economic killer” at an event Saturday in Phoenix. “Kamala knows this,” Cuban added, noting, “You haven’t heard her talk about the policies” that she appeared to have previously supported by broadly supporting Biden’s budget proposal. “Some people think there will be an unrealized gains tax on capital gains, but there isn’t,” said Cuban, the former “Shark Tank” star and one of Harris’ most visible allies in the business world. Harris did not formally address unrealized capital gains during the campaign.

Main critic

Recent viral social media posts falsely claim that the proposal will cause the impact to be felt by ordinary Americans well below the threshold – the average American family has a net worth of $192,900. Trump claimed at an August 23 rally that the Harris unrealized capital gains proposal would impact “small business owners” who would be forced to sell their “restaurant immediately,” a seemingly false statement considering that the plan only affects a small group. Trump’s allies have been panning the proposal: Musk said it was part of a political plan that would lead to “bread lines,” and billionaire venture capitalist Marc Andreessen said launching startups in the U.S. would become “completely implausible” as the proposed taxes would supposedly offer no incentives for founders who want to build huge fortunes. The unrealized capital gains tax is “one of the worst tax ideas out there,” Jay Clayton, Trump’s Securities and Exchange Commission commissioner, told CNBC on Tuesday.

Important background

The Biden administration estimates that the unrealized capital gains tax would generate about $503 billion in tax revenue for the government in fiscal years 2025 to 2034. Experts say the proposal is unlikely to make much progress in Washington, considering Biden did not adopt the proposal when Democrats controlled both chambers of Congress from 2021 to 2023 and policymakers had difficulty enforcing it. The problem, several experts recognized, is that determining what actually counts as unrealized capital gains is a difficult task because it is not based on actual transactions, which is a “very laborious process,” said Larry Adam, Raymond’s chief investment officer James recently told Yahoo Finance.

Cons

The idea of taxing America’s wealthiest residents is widely popular, and a 2022 YouGov poll found that 57% of Americans believe billionaires don’t pay enough in taxes. A 2021 White House study found that billionaires on Forbes’ annual list of the 400 richest Americans paid an effective average federal tax rate of 8.2% from 2010 to 2018, using a method that included unrealized capital gains, which was well below the average federal income tax rate of more than 18% during the period, according to the Tax Policy Center.