Kamala Harris’ Proposed Economic Policies: The Impact on Americans

As the political season heats up, former President Donald Trump and current Vice President Kamala Harris have put forward several proposals to bolster the economy. Here, we’ll examine some of Harris’s proposals and their potential impact. Ms. Harris has several other policies not mentioned below, but here are some of her key proposals that we can expect to see if she wins in November.

Down payment assistance for first home buyers

Vice President Harris is proposing a $25,000 tax credit for first-time home buyers. This will certainly create more demand for housing. Unfortunately, housing prices are still high due to a lack of supply and relatively strong demand. This proposal will increase demand for housing and further increase housing prices. As housing prices rise, more and more people at the middle and bottom of the economic spectrum will be priced out of the market. While this policy may win more votes, in the long run it could hurt many of the same people it is trying to help.

Long-term capital gains tax

Capital gains taxes are typically lower than the tax rate on ordinary income. This is intentional, as it helps to promote a vibrant capital market (i.e., investment), which is essential for a strong economy. Under Harris’ proposal, LTCG rates would rise from their current 0%, 15%, or 20% (depending on your tax bracket) to a flat 28%. The new rate would apply to people with taxable incomes of more than $1 million. While this would raise taxes on the wealthy, keep in mind that the wealthy own a majority of the outstanding shares. If this becomes law, those investors may feel pressure to sell before the law takes effect. This selling pressure could cause stock prices to fall, which would hurt everyone who invests in the stock market, including those in the middle class. So while it’s aimed at the wealthy, the fallout could hurt millions of people who aren’t wealthy.

Individual marginal tax bracket

Harris proposes to increase the top marginal tax bracket from 37% to 39.6%. While this may not sound like much, the income level that would subject taxpayers to the new, higher rate is significantly lower under her proposal. For example, currently a single person falls into the top 37% bracket if their taxable income is more than $609,350, and a married person falls into the new 39.6% bracket if their taxable income is more than $400,000. A married person would fall into the higher bracket if their taxable income is $450,000. Tax increases are seen as a headwind to economic growth, and they should be no different.

Tax on unrealised capital gains (new)

Harris is proposing a brand new tax on unrealized capital gains for wealthy individuals. Here’s an example of an unrealized gain. Let’s say you buy 1,000 shares of stock at $100 per share (total investment $100,000). Let’s say that in two years, the stock price rises to $125 per share. Your investment is now worth $125,000 and your unrealized gain is $25,000 ($125,000 – $100,000). It’s unrealized because you haven’t sold the stock yet. Under Harris’ plan, you would have to pay capital gains taxes on the $25,000 gain, even though you didn’t sell the stock. So you’d have to find the money to pay the tax from another source. What happens if the stock price drops to $90 per share? It’s unclear, but you should be able to claim a loss again, even though you didn’t sell. This could lead to a lot of uncertainty among investors and possibly to fewer investments in our capital markets, because investors want to avoid this tax.

Increase in corporate tax

Harris proposes raising the corporate tax rate from 21% to 28%. Higher corporate taxes cause some companies to relocate outside the U.S. to a country with a more favorable tax environment. This is called a tax inversion and is more common when the government raises corporate tax rates. Why? Because American companies have to compete on the global stage. If taxes in the U.S. are too high, they may decide to relocate to another country with a lower tax burden. Ireland is a popular choice with its 12.5% ​​corporate tax rate. Business is essential for jobs. You can’t have one without the other.

It is worth reiterating that tax increases are a headwind to economic growth. As the government collects more and more taxes from individuals and businesses, there is less money available for the private sector to spend and invest. The federal government can also redistribute tax revenues to certain areas of the economy. In other words, the government can choose which businesses and industries it will benefit from. This creates increased pressure from lobbyists who try to influence politicians with money and various incentives. In many ways, this is one of many problems in Washington. We will look at Trump’s tax policies, including his tariff policies, in a future article.