The ‘Billionaire’ Minimum Tax: How Harris Could Tax America's Ultra-Rich

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In an era of unprecedented economic inequality, Vice President Kamala Harris has taken a bold stance on tax reform, aiming to ensure that America’s ultra-wealthy contribute a fairer share of their growing wealth. Under Harris's vision, billionaires and major corporations would no longer benefit from a tax structure that allows them to pay proportionately less than many middle-class workers. But with the focus on taxing “unrealized capital gains,” the concept has sparked debate on whether this would address or exacerbate economic disparities.

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Understanding the Current Tax Disparity

Today, teachers, nurses, and firefighters often pay a higher effective tax rate than billionaires and major corporations. This is not because the ultra-wealthy evade taxes, but rather because a significant portion of their wealth comes from capital gains on assets they haven’t sold, which allows them to defer taxes indefinitely. For example, while someone earning a salary faces direct income tax, someone like Elon Musk can leverage his wealth by borrowing against his stock in companies such as Tesla or SpaceX. By avoiding asset sales, he avoids capital gains tax—a strategy often referred to as “buy, borrow, die.”

In essence, the current tax code allows the wealthiest Americans to accumulate substantial gains, which they can pass on to heirs with minimal tax implications, reinforcing generational wealth. Democrats argue that such wealth could be better utilized to support public services, infrastructure, and other societal needs. Vice President Harris’s proposal seeks to close this loophole, advocating for a tax policy that better aligns with the principles of equity.

The Harris-Biden Proposal Explained

The proposal introduced by President Biden, with support from Harris, would implement a new minimum income tax on Americans with over $100 million in assets, targeting the top 0.01% of earners. This would include unrealized gains as part of taxable income, establishing a minimum effective tax rate of 25%. By taxing gains as they accrue value, this policy aims to capture the untaxed growth of billionaires' assets, which often go untaxed for decades. The Treasury Department estimates that this could generate approximately $500 billion in tax revenue over a decade, potentially funding a range of government programs.

To ease implementation, the plan suggests an initial payment period of nine years, with subsequent taxes on unrealized gains payable over five years. High-income households could face capital gains tax rates up to 33% under this framework, further ensuring that the ultra-wealthy contribute more proportionally to their income growth.

Why Unrealized Capital Gains Are Central to the Debate

Unrealized capital gains refer to the increase in the value of an asset that hasn’t been sold. Suppose a person bought a stock for $20 and it’s now worth $100. The $80 profit, or “unrealized gain,” currently isn’t taxed until the stock is sold. Critics argue that taxing unrealized gains is equivalent to taxing “paper profits,” which could impose burdens on asset owners without corresponding liquidity to pay taxes.

Moreover, assets that are difficult to value, like art, private companies, or real estate, present unique challenges. How would a fair value be determined without a market sale? To address this, the proposal would use the most recent available market values, though some assets’ worth could remain open to dispute with the IRS, potentially leading to legal complexities and taxpayer dissatisfaction.

The “Buy, Borrow, Die” Strategy and the Case for Reform

One of the wealthiest individuals, Elon Musk, offers a prime example of why this issue has gained traction. By leveraging his shares in Tesla, Musk has avoided selling his stake, securing loans with low-interest rates instead. When he borrowed over $1 billion against his holdings to acquire Twitter, he continued to enjoy his wealth without triggering capital gains tax. Known as the “buy, borrow, die” approach, this method enables billionaires to enjoy the benefits of their wealth while keeping it largely tax-free.

Critics argue this strategy perpetuates a form of tax privilege, reserving benefits like flexible repayment terms and low-interest loans only for the ultra-wealthy, who use their assets as collateral. Proponents of taxing unrealized gains argue that such accumulated wealth should contribute more to the public coffers, potentially reducing reliance on taxes from middle- and lower-income Americans.

Potential Economic and Market Impacts

The proposal is not without risks. Some economists warn that it could trigger asset sales, particularly among closely-held private companies or assets where the owners may struggle with valuation requirements. This might lead to unintended consequences in markets, potentially causing a sell-off in stocks, real estate, or high-value assets like art. Others argue that the tax could discourage investment, as asset owners might prefer more liquid forms of wealth.

Moreover, if an asset's value drops after taxes have been paid on it, wealthy taxpayers may be eligible for refunds, placing the IRS in the complex position of adjusting for fluctuating values. This potential volatility in asset pricing complicates tax planning and could affect the broader economy, especially in sectors where asset liquidity is already limited.

Political and Legal Challenges

For a billionaire tax to become a reality, several stars must align. Harris would need to secure the presidency, and Democrats would need majorities in both the House and Senate. Yet even if these political hurdles are overcome, the tax’s legality could face scrutiny. While the 16th Amendment allows Congress to tax incomes, it doesn’t clearly define “income.” Legal experts suggest that taxing unrealized gains might require further constitutional clarification, as it could stretch the traditional interpretation of income.

Should such a tax pass, it’s likely the Supreme Court would be asked to weigh in, creating uncertainty about its long-term viability.