Earlier in 2024, there was a significant backlash to President Biden’s proposed tax plan, which would see capital gains taxes rise to their highest levels in 100 years, unrealized gains become taxable for some individuals, and corporate taxes see a substantial uptick.
Despite the passage of nearly five months and the changing of the Democratic Party candidate from Biden to Vice President Kamala Harris, the debate has not subsided and has, in several ways, only grown more intense.
Indeed, Harris historically endorsing measures deemed even more radical than the current President’s and her recent comments on price controls seeing her labeled a ‘communist’ have only stepped up the pressure on the campaign.
Why is the Harris tax plan so controversial?
For many in the U.S., the pressure on Harris can be seen as justified. The candidate has pledged to continue pushing for the outgoing President’s tax reform program, and her administration, if successful, would indeed see stock and cryptocurrency taxes go up to their highest levels in a century.
The presidential hopeful’s plan entails raising the upper limit to capital gains taxes from 37% to 39.4% and, if the original scheme is more closely implemented, to 44.6%.
There is also significant confusion about how the potential administration would handle cryptocurrencies.
On the one hand, the Democratic Party has been tough on the sector and the Biden program was reported as intending to eliminate a special tax subsidy for digital assets and other transactions, thus significantly raising the burdens associated with actively engaging with the crypto markets.
On the other, Harris has made her intentions for a rapprochement with the industry known, casting some doubt on how the actual approach to cryptocurrencies might look, especially since the details have been severely lacking.
Finally, the plan would also raise the corporate tax rate from 21% to 28%, which, like many of the program’s other facets, could vicariously impact investors.
The pros and cons of the Harris tax plan
Indeed, the Harris proposal is specifically intended to be progressive, meaning that the more one earns, the more one pays. For example, the hotly-contested unrealized gains tax would only apply to individuals with a net worth above $100 million. All the increases are intended to affect only those Americans making more than $400,000 annually.
Still, the ambitious nature of the plan means it is likely to have many unintended consequences and could require numerous contingencies to work as desired.
Historically, corporations have tended to offload their costs to workers and consumers, sometimes out of genuine necessity, sometimes to protect generous pay packages of executives and to finance stock buyback programs worth tens of billions of dollars.
Should companies opt for such an approach, many Americans could see their bills go up, their job opportunities go scarce, and their colleagues get axed. Simultaneously, as controversial as they are, a lack of funds for stock buyback programs could lead to substantially lower returns for investors.
Such possible consequences not only make the plan more difficult to pass but would also likely require the creation of additional provisions and oversight mechanisms to ensure workers and consumers are not unjustly affected.
In turn, implementing such measures would likely drive enforcement costs up, damaging one of the program’s main goals – reducing the revenue-expenditure gap – and thus, again, making the plan harder to pass.
On the flip side, the plan, if successfully and correctly passed, could do much to address the chronic issues of corporate tax evasion, growing inequality, and apparent aberrations, such as the Boeing (NYSE: BA) CEO making more than $30 million in the same year his company’s planes became a meme for falling out of the sky.
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