Oh my little cupcake,
Where are your sprinkles?
– Fuddy Duddy, by Fishwife
Land of the Free Stuff
Vice President Kamala Harris endorses the nearly $5 trillion in tax hikes outlined in President Biden’s 2025 budget proposal. This extensive document, nearing 200 pages, proposes a sweeping array of tax increases.
Among the most striking increases is the federal corporate tax rate of 28 percent, alongside a 44.6 percent top capital gains and dividend tax rate. Currently, the U.S. federal corporate tax rate stands at 21 percent, while the top capital gains and dividend tax rate is 20 percent.
If enacted, these tax hikes would position the United States with the highest combined tax rates on corporate income among developed nations—a surprising claim for a country that prides itself as the land of freedom.
Today, after a century of public education, many Americans conflate freedom with government provision of free goods. This misconception influences their voting behavior.
Greedy corporations often find themselves as prime targets for liberal politicians, who use attacks on big business as a strategy to gain votes.
However, as history shows, it is ultimately workers who bear the brunt of tax increases. Higher corporate income taxes typically lead to reduced wages and diminished job opportunities. Consequently, the economic fallout from Harris’ proposed tax hikes would far outweigh any revenue generated.
Yet, for Harris, this reality appears inconsequential. The principles of wealth redistribution and government expansion are foundational to progressive socialism, which she seems determined to pursue, even at the expense of the very individuals she claims to advocate for.
Taxing Phantom Profits
It is increasingly evident that the United States does not face a revenue crisis but rather a crisis of overspending. For fiscal year 2024, the U.S. Treasury expects to bring in nearly $4.8 trillion, yet expenditure is projected to reach $6.7 trillion.
This results in a deficit of $1.9 trillion, which is financed through debt. Such deficit spending has adverse effects, including accelerating consumer price inflation and compounding the national debt—currently exceeding $35.2 trillion—which future generations will be compelled to address.
This substantial debt load will likely impede future economic growth, as funds will be redirected to address past spending rather than fueling new investments.
For decades, Washington has exhibited an inability to tackle its spending issues. The cycle of increased taxation naturally accompanies increased spending, with no end in sight. Politicians consistently devise new methods to impose taxes on citizens.
One of Harris’ proposals involves a wealth tax on unrealized capital gains. The plan suggests a minimum tax of 25 percent on both traditional income and unrealized capital gains for individuals with over $100 million in total wealth.
This idea represents a tax on “phantom profits.” It’s fundamental to economics that no value should be taxed until a financial asset is sold and generates actual profit.
Fool Me Once
Unrealized capital gains imply that the asset remains unsold and the profits are not realized by the holder. Taxing these profits is fundamentally flawed.
Additionally, market conditions can change; unrealized capital gains can turn into unrealized capital losses. Taxing assets that may lose value is illogical.
Would the Treasury compensate you if your previously taxed unrealized capital gains devolve into unrealized losses?
But there’s reassurance: this tax only applies to individuals with a net worth exceeding $100 million.
Do you possess over $100 million? Neither do we. Hence, why concern ourselves with the unrealized capital gains tax?
Primarily, there’s a moral dimension. Taxing personal property is akin to theft, and this “wealth tax” can be viewed as government seizure of private assets.
Furthermore, this $100 million threshold is likely to decline over time. If this tax framework is established, it will inevitably expand to encompass unrealized capital gains in 401(k) accounts. History supports this prediction.
Once the government identifies a new source of revenue, it typically seeks to extract more. Wealth taxes invariably extend to middle- and working-class individuals.
When the 16th Amendment was ratified in 1913, federal income tax mainly targeted the wealthy.
Originally, the top tax bracket was 7 percent on incomes exceeding $500,000—in today’s terms about $11 million. The lowest bracket began at just 1 percent.
What transpired?
Harris Wants Your Retirement Account
The government continually invents new justifications for tax increases, often using war as a convenient pretext.
To fund America’s entry into WWI, Congress enacted the 1916 Revenue Act, followed by the War Revenue Act of 1917. In a swift motion, the highest income tax rate skyrocketed from 15 percent in 1916 to 67 percent in 1917, finally reaching 77 percent in 1918.
Post-war, the tax rate decreased to 25 percent, still significantly higher than the initial 7 percent. Sadly, that reduction was fleeting. In 1932, during the Great Depression, Congress raised taxes again from 25 percent to 63 percent for the highest earners.
The rollercoaster of taxes endured throughout the 20th century and continues today. However, it has never reverted to anything close to the original 7 percent.
Currently, the top income tax rate stands at 37 percent. Including the 3.8 percent from the Affordable Care Act, the maximum federal income tax rate reaches 40.8 percent.
Yet, it’s not just top earners who grapple with Washington’s tax demands.
According to the US Bureau of Labor Statistics (BLS), American workers earned a median wage of $1,139 per week in the first quarter of 2024, amounting to $59,228 annually, placing the median wage earner within the 22 percent tax bracket.
Individuals in the 43 states with individual income tax also face additional state levies. Furthermore, various taxes like Social Security, Medicare, property taxes, sales tax, and assorted fees compound the financial burden on everyday Americans.
These taxes weigh heavily on the shoulders of American wage earners. Was it the intention of the original architects of the income tax in 1913 to impose such strains on average citizens?
The answer remains unknown, but the outcome is crystal clear. The same fate awaits unrealized capital gains taxes.
Initially targeting the ultra-wealthy, Washington is likely to extend its reach to the unrealized capital gains in retirement accounts of average Americans.
The money you’ve diligently saved for decades may vanish long before you reach retirement age.
Keep this in mind when you’re reassured that the unrealized capital gains tax only impacts the extremely wealthy. Generations ago, when the federal income tax was introduced, average Americans received similar assurances.
We’ve been paying the price ever since.
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Sincerely,
MN Gordon
for Economic Prism
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