U.S. Vice President Kamala Harris recently proposed a 28% tax on long-term capital gains for individuals earning more than $1 million annually. This proposal has sparked discussions among investors about how it could impact their assets. On the other hand, former President Donald Trump has not outlined a specific capital gains tax proposal, aligning more with a broad support for tax cuts.
Democratic presidential nominee Vice President Kamala Harris’ proposal marks a departure from President Joe Biden’s 2025 fiscal year budget, which suggests a 39.6% long-term capital gains tax rate for those earning above $1 million per year. Harris’ plan also includes raising the net investment income tax (NIIT) from 3.8% to 5%.
In comparison, former President Donald Trump has not provided a detailed capital gains tax plan. However, conservative think tank The Heritage Foundation, along with over 100 other right-leaning organizations, outlined a vision for a conservative administration called Project 2025, which includes a proposal for a 15% tax rate for capital gains and dividends while abolishing the NIIT.
Historically, capital gains tax rates have been lower than ordinary income tax rates, with preferential rates for qualified dividends and long-term capital gains. Harris’ proposed 28% top capital gains rate would be the highest since 1978, while her combined 33% rate for top earners would be the highest in recent history. This rate mirrors the top rate enacted by former President Ronald Reagan in 1986.
After tax cuts during Former President George W. Bush’s administration, the top capital gains tax rate dropped to 15% from 2003 through 2012, the lowest rate since the Great Depression. However, the volatility of capital gains revenue due to investors’ timing of profit realization creates uncertainty for revenue estimates.
Higher capital gains tax rates can lead to a “lock-in effect,” where investors delay selling assets to avoid higher taxes, impacting revenue collection. While there have been proposals to tax unrealized gains, they have not gained widespread support in Congress.
As the election season progresses, understanding the implications of proposed capital gains tax rates is crucial for investors and policymakers alike. Harris’ proposal for a 28% tax rate on long-term capital gains for high-income earners has generated discussions about its potential impact on asset values and investment decisions.
Compared to Biden’s budget plan, which suggests a 39.6% tax rate for similar income brackets, Harris’ proposal represents a more moderate approach. However, Senator Bernie Sanders has indicated a desire for even higher rates, suggesting that Harris may be taking a pragmatic stance in her proposal.
In contrast, former President Donald Trump has not provided specific details on his capital gains tax plan, aligning more with a general support for tax cuts. The Heritage Foundation’s Project 2025, endorsed by many conservative organizations, proposes a 15% tax rate for capital gains and dividends, along with the abolition of the NIIT.
Looking back at historical trends, capital gains tax rates have typically been lower than ordinary income tax rates, with preferential rates for long-term assets. Harris’ proposed 28% top rate would be the highest since 1978, reflecting a departure from recent trends.
The volatility of capital gains revenue, influenced by investors’ timing of asset sales, poses a challenge for revenue forecasting. Higher tax rates can lead to a “lock-in effect,” where investors hold onto assets to defer taxes, impacting revenue collection.
While proposals to tax unrealized gains have been floated, they have not gained widespread support in Congress. As the election season progresses, the debate over capital gains tax rates will likely continue to evolve, with implications for investors and policymakers alike.