The Truth about Harris’s Proposed Tax on Unrealized Capital Gains

A meme going around Facebook about Kamala Harris’s proposed tax on unrealized capital gains reads “Home Owner Do you realize that the Harris plan to tax unrecognized Capital Gains mean if your house goes up in value you will have to pay that Tax Even if you don’t sell your House!”

The meme drew widespread criticism for it’s falsity. On the face of it, this is factually wrong—but only on the face of it. Harris specifically states that she would limit the tax to those with $100 million in assets, and only to those who don’t pay their “fair share,” defined as 25% at minimum.

But in engaging the skeptics, I argued that, properly analyzed, the meme is in fact correct. Below is a summary of the postings I made on Facebook.

Properly understood, the meme is exactly correct—“Harris's plan to tax unrecognized capital gains MEANS” your home. No, it’s not in her published plan. She's running a campaign. Of course she’s not stupid enough to SPECIFY it for middle class homes. Not now. Politicians regularly sneak in their schemes first for the rich. But once in place, the logic of the principle opens the door to widening the scope of the tax to more and more taxpayers, ultimately snaring the vast middle class. Even AXIOS, which was cited by one fact-checking correspondent challenging that meme, understood this:

There's also a slippery slope concern; the big mental and legislative hurdle is taxing unrealized capital gains — after that, lowering the threshold below $100 million would be easier, EVEN IF NOT CURRENTLY ON THE TABLE.

In other words, once you accept the principle, and set the precedent, it will be easy for politicians to expand the power. James Madison, referring to the increasingly tyrannical British laws that led to the American Revolution, said  

The free men of America did not wait till usurped power had strengthened itself by exercise, and entangled the question in precedents. They saw all the consequences in the principle, and they avoided the consequences by denying the principle. [My emphasis]

Fortunately, the Founders understood the slippery slope. That’s why America exists. 

We, too, should understand the consequences in the principle Harris and the Democrats are trying to sneak in. 

Many people believe Harris’s tax on unrealized capital gains, also known as wealth taxes, will always apply to the miniscule centi-millionaire group. But when we start sliding down the slippery slope, and it hits middle class homes, they’ll say “But I didn’t mean this!” Yes, you did. The total value of Americans’ homes tops $50 trillion. How long does anyone think the political class will ignore that pot of gold? If we don’t see the consequences in the principle of taxing unrealized capital gains, and deny the consequences by denying the principle, we will be opening the door to taxing our homes—and virtually every non-liquid asset Americans own, like 401ks, IRAs, brokerage accounts, collectables, the values of pensions, and on and on to the unrealized capital gains of any asset the politicians can discover. 

Personally, my main reason for opposing unrealized capital gains taxes is that it is immoral. It’s wrong for the middle class. And just as wrong for mega-millionaires. It’s also grossly  impracticable, as many countries found out by hard experience. As CATO reports:

More than a dozen European countries used to have wealth taxes, but nearly all of these countries repealed them, including Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden. Wealth taxes survive only in Norway, Spain, and Switzerland.

For both moral and practical reasons; for our own financial well being; and on principle, we should reject Harris’s hideous wealth tax scheme. This is a really big deal. It is something entirely new, and would open up a whole new target on Americans’ financial health. We should not give our tax-hungary political class that target. Let’s deny the consequences of the principle. Reject Harris’s scheme to tax our homes!

Related Reading:

Unrealized Capital Gains Taxes Will Trickle Down to the Middle Class by Peter Jacobsen for FEE

Joe Manchin on Biden's Wealth Tax: 'You Can't Tax Something That's Not Earned.' by Peter Suderman for Reason

Plans to Tax Unrealized Capital Gains Are Beyond Radical. They’re Ridiculous by Jack Salmon for National Review

Biden Is Trying To Pass a Wealth Tax—Again. It Could Be Unconstitutional by Ira Stoll for Reason

Warren/Sanders Wealth Tax is Rooted in the Ultimate Collectivist Evil, Egalitarianism

Regarding Elizabeth Warren, Bernie Sanders propose 3% wealth tax on billionaires, CNBC reports:

Sen. Elizabeth Warren, Sen. Bernie Sanders and other Democrats on Monday proposed a 2% annual tax on wealth over $50 million, rising to 3% for wealth over $1 billion.

The Ultra-Millionaire Tax Act would aim to close the U.S. wealth gap, which has grown wider during the Covid pandemic.

This is the ultra-evil of Egalitarianism laid bare. Note that the rationale for the proposed wealth tax doesn’t even pretend to offer a positive benefit to anyone. It’s purpose is strictly to tear down the successful. It used to be that Leftist sought to take from the “haves” to give to the “have-nots.” It’s morally wrong, but at least their ostensible purpose was to economically lift the “less fortunate.” But who gains by “closing the wealth gap?” No one. The only purpose behind the Warren/Sanders wealth tax, by their own brazen admission, is to loot the successful because they are successful. That’s pure nihilism. That’s Egalitarianism. 

On a more practical level, you can't "close the wealth gap" or ever significantly "reign in" the gap without subjecting all or most Americans to the wealth tax and at much higher rates. As Reason’s Peter Suderman observes in Elizabeth Warren Still Wants a Wealth Tax. It Still Won't Work:

Warren's advocacy for the wealth tax is also born out of a desire for easy political targets who can shoulder the blame for whatever problems or pseudo-problems Warren wants to bring up. What Warren needs are villains.

The plan would, however, result in a huge uptick in tax-related hassle for ordinary, not-super-rich people: Beyond the annual tax on wealth, her plan would also pump an additional $100 billion into the Internal Revenue Service to beef up enforcement, and mandate 30 percent annual audit rate for the agency—meaning that nearly a third of American households would be audited every year.

This expansion in "enforcement" of a wealth tax bill can mean only one thing; to set the stage for a huge expansion of the wealth tax down the road. Given the logic of the basic Egalitarian premise behind the wealth tax--"fighting" [i.e. outlawing] wealth inequality--it is inevitable that every dime of Americans' wealth up and down the wealth scale must eventually be considered a target of the wealth tax, and at much greater percentages. After all, if a person with $50 million is targeted because his wealth is greater than those with less than $50 million, then the same logic can be used against people with net worth of $5 million, $500,000, $50,000, $5000, or $500.

A wealth tax is much more insidious than the Income tax. At least you know that once your income is taxed, the rest is yours, and the only additional tax you would owe is the earnings on your after-tax wealth, not your after-tax wealth itself. But under the Warren/Sanders wealth tax, none of your wealth can ever be safe from the Egalitarian looters—and for no other reason than that the next guy doesn’t have what you’ve earned, and that “wealth gap” must be closed.

Related Reading:

Leonard Peikoff on Egalitarianism, from The Dim Hypothesis, Page 171

 

‘Terrible Idea’ With ‘Dismal Track Record’: Top Economists Blast Elizabeth Warren’s Latest Proposal

‘Equity’ in Education is Inequitable and Anti-Education Excellence

‘Harrison Bergeron’ vs the Right Way to Address the ‘Achievement Gap’ in Education

Economic Egalitarianism Leads Directly to Racist Policies in NJ

QUORA *: ‘Why do people find communism so terrifying as an idea?’

How Egalitarianism Rewards Failure and Penalizes Success

President Obama, Stop Damning the Achievers for their Virtues—Harry Binswanger

Obama's Corrupt "Equality" Campaign and the 99/1 Premise

Ex NJ Gov. Florio Calls for Dismantling American Checks and Balances

In a New Jersey Star-Ledger guest column, former NJ Governor James J. Florio claims that Something is Fundamentally Wrong with American governance.

He writes:

For one sure thing, in all of our states, governors are being called upon to fund functions that are clearly beyond their states’ financial capabilities. The pandemic is the most glaring example. Clearly, the federal government should have stepped in much earlier with the resources needed to combat a once-in-a-lifetime virus. But the pandemic is far from the only example. The cost of higher education, health care, mass transit and government employee pensions are among others that outstrip the ability of states to do what needs to be done so everyone can thrive.

A case can be made that the pandemic, being a systemic issue that knows no political borders, is more a federal issue than a state issue in terms of governmental policy response. But the underlying standard should be individual rights protection..

Both higher education and normal health care are individual, not governmental, responsibilities. Of course, the federal government has already usurped the individual in the 65+ healthcare market. And the federal government largely funds higher education, through its student loan programs, Pell grants, and other methods. 

Mass transit should be funded by users’ fares. 

Government employee pensions, being a form of compensation, should be funded by the government the employee works for. Why should the federal government be taxing people across the country to fund my local police department?  

Florio makes no bones about his real target:

Once you realize what a big problem this is, you can’t help but focus attention on the U.S. Constitution, which, since its adoption in 1787, has frequently been interpreted to largely assign to our state and local governments the responsibilities of dealing with issues of a magnitude that could not be imagined 234 years ago. The result often is counter-productive competition for resources among the 50 states to the detriment of their residents and the entire nation.

Florio doesn’t specify what “resources” the states supposedly compete for. But for sure, the Founders did not imagine the extent to which individual rights would be violated. The last sentence, concerning competition among the states, is particularly revealing. In a sense, competition between the states is precisely what the Founders aimed for. The point of federalism is precisely to balance power among the states, and between the state and federal governments. The Founders whole point was to roadblock centralization of power, the path to tyranny. Take the issue of taxation:

Having to rely on resources that rise or fall depending on economic conditions within a state’s borders is a highly imperfect way to meet human needs and make the public investments needed for equitable results. Meanwhile, states offer all kinds of tax breaks to lure businesses away from other states in the false hope that poaching will be the answer, though it never is. 

Tax competition between the states is an example of the success of and need for the current division of power. That competition is perfectly legitimate. It serves the purpose of checking the taxing powers of the states. People and businesses flee in large numbers from higher tax states to lower tax states routinely. Florio, being a “progressive” Democrat, obviously doesn’t place much importance on individuals wanting to keep more of their own earnings, and spend it as they wish. 

Moving to a more broad-based national system of taxation than exists today would free states from their dependency on fluctuating factors and bring a higher degree of uniformity and equity to revenue-raising at the national level — to say nothing about greater amounts of revenue. A carbon-based tax or a European-styled value-added tax are examples of possible options.

“Free” the states? The federal income tax has already given the federal government enormous powers it should not have. Taxation and government funding is control. The more the government taxes and spends, the more it controls what it spends on. Governments at all levels already tax and spend too much, and for too many illegitimate reasons (illegitimate from the standpoint of individual rights.) But at least we have the “competition for resources among the 50 states” to act as a check and balance. Florio wants to “free” the states from that competitive discipline, which really means diminishing the states’ accountability to their own citizens. Cutting the individual citizen out of the equation, and empowering the political and federal bureaucratic classes, is his entire point. The last thing we need is another “broad-based national system of taxation!”

I recently had a conversation with a man who bitterly complained that he and his wife both work full time and still can’t make ends meet. “What the hell is going on; what am I supposed to do?” he asked. “Who is to blame?”  I suspect he would be more receptive to Donald Trump’s “answers” than to a discussion of state and local tax systems. But it’s a discussion we need to have if we’re honest about solving problems.

By all means, let’s discuss the bloated taxes, including the hidden tax on consumers masquerading as a “corporate income tax” that drives up the cost of consumer goods. And let’s remember that Florio wants to remove one of the restraints on taxes, the tax competition between the states.

Whatever the issue, applying old, increasingly ineffective or inequitable policies to new problems can only make matters worse and cause additional problems. It is time to review 1787 assumptions in light of 21st-century responsibilities.

Yes, let’s review, and reaffirm, the 1787 “assumptions”--the fundamental principles--that the Founders put in place. The Constitution was meant to divide governmental powers to prevent centralization and thus tyranny, and to stifle the ambitions of statists like Florio. Florio concludes:

This task is not for the faint-hearted. Some upholders of the status quo will fight to the death (usually for money); think tobacco, coal, assault weapons. But, the end goal — preserving our democracy — is worth the struggle.

The end goal of the Founders was not Democracy. It was a republic with a democratic process  constitutionally limited by the ultimate safe space, inalienable individual rights. The principle of individual rights is a check on governmental power. Checks and balances is a check on government power. Both stand in the way of centralization and tyranny. The Constitution leaves plenty of room to devise solutions to problems that legitimately require governmental involvement, such as the pandemic. But the Left is looking beyond the legitimate functions of government, the protection of individual rights, to involve government in. Thus, like the attack on the Electoral College, Florio is continuing the Left’s attack on what is fundamentally right about American governance, the structural checks and balances embedded in the Constitution of 1787. 

Related Reading:

In the Name of Science, Preet Bharara and Christine Todd Whitman attack America’s Checks and Balances.

QUORA: ‘Why does the Electoral College of the United States of America exist?’

Voting Rights are Not the ‘Most Fundamental Right’—or Even a Fundamental Right

The Conscience of the Constitution—Timothy Sandefur

QUORA *: ‘What do you think of the fact that California has 2 senators to represent 40 million citizens while 23 smaller states have 46 senators to represent 40 million citizens?’

How to Resolve the Government School-created Conflict Between the “Establishment” and “Free Exercise” of Religion.

Kate Cohen, writing in The Washington post, argues that Taxpayers shouldn’t be paying for religious schools. On the face of it, she’s absolutely right. 

But, not so fast. Cohen writes:

The Oklahoma Statewide Virtual Charter School Board’s recent decision to allow a Catholic archdiocese to operate a public school is both illegal and unconstitutional.

I’m not exaggerating — I’m just reading.

A charter school “shall be nonsectarian in its programs, admission policies, employment practices, and all other operations,” Oklahoma law states.

Public schools “shall be open to all the children of the state and free from sectarian control,” the Oklahoma constitution declares.

On Charter schools, this is arguable  But Cohen expands upon her point by citing several other cases that involve parental choice and privately run, but publicly funded schools:

In education, that effort began at least 40 years ago, with Mueller v. Allen, which ruled that the deduction Minnesota gave taxpayers for private-school expenses had to apply to parochial-school expenses as well. In 2002, Zelman v. Simmons-Harris (Cleveland’s voucher program); in 2020, Espinoza v. Montana Department of Revenue (Montana’s tax credit program); and in 2022, Carson v. Makin (Maine’s tuition reimbursement program) found that states cannot exclude religious schools from programs that subsidize private education. [I covered this last case here.]

The hollowness of the Left’s Equity crusade is vividly on display here. If funding for parental school choice is generally available to the public at large, then how do you justify denying that benefit to a parent who chooses a religious school? Federal law bans government “discrimination on the basis of race, color, religion, sex or national origin.”

Granted, in any of these programs, taxpayer money is finding its way to religion. The First Amendment prohibits the government from enacting any “law respecting an establishment of religion.” I’m uncompromisingly supportive of that principle. But public funding of education creates a conflict with the second part of the First Amendment, which bans the government from “prohibiting the free exercise [of religion] thereof.” I’m uncompromisingly supportive of that principle, as well. In a fully free society, with a fully consistent First Amendment—one that encompasses a complete separation of education and state in the same way and for the same reasons as the separation of religion and state—there would be no such conflict.   

Unfortunately, we don’t live under a fully consistent First Amendment. So, how does one resolve this unnecessary conflict between Establishment and Free Exercise?

The only fair way to resolve it is to consider who is running the school, and who is choosing the school. Clearly, government-run schools should exclude religious teaching in any form. Also clearly, the state should not directly fund, of its own initiative, any religious school. But if the religious school is privately run, and if the school is privately chosen by parents spending tax money funded through a school choice program generally available as a public benefit, then it must not be considered in violation of the First Amendment. This would seem to include charter schools, as well.

Related Reading:

QUORA: 'What is one constitutional amendment that should be added to the U.S. Constitution that does not exist today? Why does it need to be added?'

Linda Stamato’s Confused Understanding of Church/State Separation

Answering Readers’ Rebuttals to ‘What the Parents’ Rights Movement is Really Really About’ - 2

 In my comment on Jamelle Bouie’s New York Times op-ed What the Republican Push for ‘Parents’ Rights’ Is Really About, I got numerous replies, all of them critical. In my comment, I advocated for universal school finance choice, based on the idea that education tax dollars should follow the child, rather than go directly to the district school of the child’s residence. 

Well, the reactionary defenders of the monopolistic status quo came out in force. This is great, because they gave me the chance to address many of the opposition arguments. I’ll address these critics in turn in a series of posts. I’ll expose their disingenuousness, double standards, evasions, and confusions. To avoid using the “[sic]” notation for every erroneous or misspelled word or phrase, Let me simply state that respondents’ comments are reposted exactly as written. In some instances, the rebuttal begins with an excerpt from my comment.

You can read my entire comment here, and the article here. None of my replies were posted because the comments section was closed. I’m taking them in turn. Here is another in the series.

Mathew Reynolds wrote:

“Publicly financed education is the standard of all nations.” 

Yes, and I'm not challenging the public financing element in U.S. education. I am challenging the monopolistic administration and control of the schools by the government and its proxies, like the teachers union. District financing is framed as “per pupil” cost. If the per-pupil tax allotment follows the student, and all schooling, including private, would still have publicly financed education. Charter schools are parent chosen, yet are publicly funded. That is a start. To be fair and impartial—that is, equitable—would be open to the parents’ choices. Publicly financed education, we must never forget, is taxpayer funded education, and all parents are taxpayers. 

Public—that is, tax-funded—funding is not morally ideal, because it involves forced redistribution of wealth. But it would be a huge practical and moral improvement over the monopolistic governmental system we have now.

“The overuse of hyperbole, such as "vicious, slanderous . . .” 

If parents challenging school books, curricula, and “information” based on educational value and/or age appropriateness at school board meetings labeled “book banners,” “censors,” “bigots,”  or even terrorists for their concern is not “overuse of hyperbole,” then what is? And then you have the nerve to call me out for words like vicious and slanderous? In my usage, these terms factually fit.

There is an elected civilian oversight of every school district, known as a school board.  These "parental rights" policies are intended to allow bigots and blowhards to bypass elected officials. 

And what happens when those bigots and blowhards win control of the school board? That’s precisely the problem. Any form of socialism, including democratic socialism, is bound to create conflict, because in any such system—and public schooling is just such a system—the most politically powerful faction that gains control gets to impose its agenda on everyone even if they don’t consent. “To bypass elected officials” is precisely what a free republic is all about. Freedom is not defined by the right to vote. It is not the “right” to seek permission from some dictatorial board, and then wait and hope for months or years to get what you want. Freedom is fundamentally the right to act on one’s own judgment—within the context of objective rule of law—regardless of the outcome of any election or anyone else’s vote. This most definitely includes choosing one’s child’s educational course, regardless of any election or elected board. I stand with the parents’ right to bypass the elected school board, pull their child and their child’s education tax allotment out of that school, and choose what they judge to be a better educational opportunity. 

Educational freedom is the civil rights movement of our time. Redirecting public funding to the direct funding of the child is a huge civil rights reform.

Education Funding: Let Taxpayers Direct Their Own Education Dollars

Educational Freedom, Not Just Education, ‘Has to Be the Top Priority for Candidates'

DeVos Could Advance the ‘Civil Right’ of School Choice Across America

A Newark, NJ Mother Demonstrates the Educational Power of Parental School Choice

Toward a Free Market in Education: School Vouchers or Tax Credits?

Charter Schools – Good, but Not the Long-Term Answer

Newark's Successful Charter Schools Under Attack—for Being Successful

Contra Congressman Donald M. Payne, a ‘For-Profit Model’ is Just What Education Needs

Pacific Legal Foundation on Education: We Need Choice, not More Money

The Educational Bonanza in Privatizing Government Schools by Andrew Bernstein for The Objective Standard

QUORA: ‘How did Reaganomics get the country back on track?’

 QUORA: ‘How did Reaganomics get the country back on track?’

I posted this answer:

It’s a bit simplistic to say Reaganomics got the country back on track. It’s largely true, but there's more to the story. Reaganomics was part of a larger trend toward freer markets and globalization of trade. Reagan’s policies can’t get all of the credit. But they deserve a lion’s share of the credit, because he accelerated the deregulation trend of the Carter Administration and his radical restructuring of income tax rates—cutting top rates from 70% to 39% and ultimately to 28%—refocused the economic incentives from stagnation to growth.* 

Reagan’s policies corresponded to an amazing resurgence in American economic power, which in turn corresponded to dramatic global economic improvements. Reagan would avoid taking credit, instead placing credit with “We the People''—the “men and women who raise our food, patrol our streets, man our mines and factories, teach our children, keep our homes, and heal us when we're sick -- professionals, industrialists, shopkeepers, clerks, cabbies, and truckdrivers.” The result was a predictable outcome of freer markets—the economy took off, with a job and innovation-filled expansion that many did not expect, except of course Reagan himself. Reagan understood that people working and trading for personal benefit is the fountainhead of economic prosperity, and that more freedom and minimal government obstructionism was all they needed.

Let’s examine the record.

As the economic expansion took hold, after the 1980 - 82 “double dip recession”—the third and fourth in 14 years— GDP growth surged 8% growth out of the box, and averaged 4% from 1983 through the end of the century (compare that to today’s “new normal” of 2% growth). And that powerful expansion was accompanied by a phenomenon that was thought impossible by the prevailing 1970s logic of Phillips Curve economics: The strong expansion was accompanied simultaneously by falling inflation (12.5% to 3,4%), falling interest rates (19% to 8%), and falling unemployment (10.8% to 3.9%). 

Thanks to Britain’s Margaret Thatcher and other world leaders, such as Red China’s Deng Xiaoping, the successor to madman Mao Zedong, free market-oriented policies spread around the world, igniting a surging global trend of prosperity. Global extreme poverty plummeted from more than 40% in 1980 to less than 10% today. At the same time, the share of the world population living middle class (or higher) lives has passed 50%. How much Reaganonmomics inspired the global free market trend, as opposed to following it, is a matter of debate. But either way, Reaganomics played a significant role in advancing it, not least of which by giving voice to free markets and individualism.

All of this astounding progress now faces multiple threats, especially the growing attacks on global free trade, the resurgence of central planning ideologies, and the Environmentalists' war on reliable energy, especially fossil fuels. But as to the question, How did Reaganomics get this country back on track? Simple. He recognized that “In this present [1970s] crisis, government is not the solution to our problem; government is the problem,” and pursued policies to reduce government interference and thus give private individuals more freedom and incentive to work, innovate, take risks, and trade for their own personal betterment.

* [I emphasize rate, rather than tax, cuts. Between 1983, when Reagan’s first round of tax rate cuts were fully implemented, and 1989, Reagan’s last year in office, individual federal income tax revenues rose 55% as the economy soared, rising every year in that period. A tax policy that leads to strong increases in federal income tax revenues can hardly be called a tax cut.] 

Related Reading:

There's a Hole in the Middle of Doughnut Economics by Steven Horwitz

"Trickle-Down Economics": Anti-Capitalists' Insulting Portrayal of the "Common Man"

Global Poverty Decline Denialism: An anti-market ideologue tortures the data at The Guardian. By Ronald Bailey for Reason

The Growth of the World’s Middle Class May Be the Greatest Story of Our Age

Did the New York Times Just Vindicate Reaganomics?

We now have a Biden Doctrine. It makes me nervous.

EXCERPTS:

First, it is a fundamentally pessimistic view of America’s recent history. Sullivan recalls the glory days of American economic power after 1945, but then notes that in “the last few decades” that strength has waned. He talks about the hollowing-out of the country’s industrial base, the export of American jobs and the atrophying of industries. We “stopped really focusing on building,” Sullivan said, as he summarized the subsidies, tariffs, bans and investments that are at the heart of Biden’s new approach.

Ironically, only a couple of weeks before Sullivan made his speech, the Economist had a cover story on “America’s astonishing economic record.” It begins with 1990 — often used as the start of the rot in the narrative of decline — and points out that despite the rise of huge new economies such as China and India, the United States’ share of global gross domestic product has stayed roughly the same since then: around 25 percent. During that same period, America’s share of the Group of Seven’s economic output increased substantially, from 40 percent to 58 percent. Today, eight of the world’s 10 biggest companies are American. In 1989, only four were American (and six were Japanese). As for building, during these decades, the United States created and built the information economy, surely one of the greatest transformations and advances in human history.

In 1990, the great fear in the United States was of being overtaken by Japan, then seen as the predatory economic power that was eating our lunch. But, as the Economist notes in the same edition, in 1990, the income per person in the United States was just 17 percent higher than in Japan; today it is a staggering 54 percent higher. Look at demographics or energy or leading technology companies, and everywhere you see the United States in a dominant position. Perhaps we got something right.

It's Time to Bury the "Trickle-Down" Myth

Capitalism: The Unknown Ideal—Ayn Rand

Three Cheers for "Trickle-Down!"

Related Listening:

Carter Trumps Reagan on Deregulation [CATO, 14 minutes]