Oh my little cupcake,
Where is the root canal?
– Purdy Duddyby Fishwife
land of free stuff
Vice President Kamala Harris supports the roughly $5 trillion in tax increases included in President Biden’s tax plan. Budget 2025The proposal is about 200 pages long and includes an extensive list of tax increases.
Notable increases include a 28% federal corporate income tax rate and a 44.6% top capital gains and dividends tax rate. The current U.S. federal corporate income tax rate is 21% and the top capital gains and dividends tax rate is 20%.
These tax increases, when combined with state taxes, would give the United States the highest overall tax rate on corporate income of any developed country—a striking distinction for a country that has long proclaimed itself the land of the free.
Today, after a century of public education, many Americans confuse freedom with free stuff. They believe freedom means getting free stuff from the government. And they vote accordingly.
Greedy corporations are a favorite target of liberal politicians. Obsessing over big business is a proven vote-getting strategy.
But as with any tax increase, it is workers who ultimately bear the cost. Corporate income tax increases lead to lower wages and fewer jobs. So the total economic cost of Harris’ proposed tax increases would be several times greater than the revenues they would raise.
But Harris doesn’t care about this simple reality. Wealth redistribution and massive government corruption are two of the basic tenets of progressive socialism. She will pursue these means even if they harm the people she claims to help.
Taxing phantom profits
At this point, it’s pretty clear that the U.S. government has a spending problem, not a revenue problem. In fiscal year 2024, which ends on September 30, the U.S. Treasury is expected to collect close to $4.8 trillion. But it also has a goal of spending $6.7 trillion.
The $1.9 trillion gap, or deficit, is financed by debt. This deficit spending has several consequences. It further drives consumer price inflation for goods and services. It also piles up on top of the national debt tab (currently over $35.2 trillion) that future generations will have to finance and pay for.
This huge debt burden ensures that future economic growth will be slower as incomes are charged to past spending, leaving little capital left to invest and fuel future growth.
For decades, Washington has shown a political inability to solve spending problems. The more taxes are levied. The more spending there is. It is never enough. As a result, politicians dream up ever more embarrassing ways to tax citizens.
One of the new proposals Harris is pushing is a wealth tax on unrealized capital gains. plan It includes a new 25% minimum tax on traditional income and unrealized capital gains for taxpayers with net worth exceeding $100 million.
This proposal is tantamount to taxing phantom profits. All it takes is a simple understanding of economics to understand that there is no tax to be paid until the financial asset is sold for a profit.
Fool me just once
Unrealized capital gains mean that the asset has not been sold, i.e. the gain has not been recorded for the benefit of the asset owner. The idea that this should be taxed is absurd.
Moreover, the market goes up and down, so unrealized capital gains can become unrealized capital losses. It is ridiculous to pay taxes on something that may disappear.
So, if I pay taxes on my unrealized capital gains and then they turn into unrealized capital losses, will the Treasury issue me a check?
But don’t worry, this only applies to people with a total net worth of over $100 million.
Do you have a total net worth of $100 million? So do we. Then why worry about unrealized capital gains taxes?
First, there is the moral aspect. Taxing private property is theft. This form of “wealth tax” is like the government confiscating private property.
Second, this $100 million limit can and will be reduced. If this tax continues, Washington will soon be taxing unrealized capital gains in 401(k) accounts. How do you know?
The U.S. government’s track record has proven this. Congress has shown that when you fish for new sources of revenue, they will ask for more and more. Property taxes are always a tax on the middle and working class.
For example, when the 16th Amendment to the U.S. Constitution was ratified in 1913 (the same year the Federal Reserve Act was passed), the federal income tax generally applied to the very wealthy.
The top rate in 1913 was 7% on all income over $500,000. That’s about $11 million today. The lowest rate in 1913 was 1%. That’s virtually nothing.
What’s going on?
Harris Wants Your Retirement Account
The government can always come up with a reason to raise taxes. War is one of the better excuses for raising taxes.
To finance America’s involvement in World War I, Congress passed the Revenue Act of 1916, then the War Revenue Act of 1917. With the stroke of a pen, the top income tax rate jumped from 15 percent in 1916 to 67 percent in 1917. Then it jumped to 77 percent in 1918.
After the war, the rate was dropped to 25 percent, still well above the original 7 percent. But that didn’t last long. Congress raised the rate again for high-income earners in 1932, from 25 percent to 63 percent during the Great Depression.
This has fluctuated throughout the 20th century and continues to this day, but has never returned to levels close to the early 7%.
Today, the top income tax rate is 37%. And with the 3.8% tax added by the Patient Protection and Affordable Care Act, the maximum federal income tax rate is 40.8%.
But high-income earners aren’t the only ones whose incomes are being seized by Washington.
According to the U.S. Bureau of Labor Statistics (BLS), the median wage for U.S. workers is $1,139 per week In the first quarter of 2024, that would be $59,228 per year, putting middle-income wage earners in the 22% tax bracket.
In addition, people living in the 43 states that impose a personal income tax pay state taxes in addition to federal taxes. And in addition to income taxes, there are Social Security and Medicare taxes. There are also property taxes, sales taxes, gas taxes, and numerous other fees and levies that are part of everyday life.
All of these taxes fall on the shoulders of American wage earners. Did the designers of the 1913 income tax really intend this “wealth tax” to be a burden on ordinary Americans?
We don’t know, but it happened all the same, and it will happen to unrealized capital gains taxes as well.
As you may know, the unrealized capital gains tax may start with the super-rich, but soon Washington will be ripping off the unrealized capital gains in the retirement accounts of the average American worker.
The money you’ve diligently saved for decades will disappear before you even reach your golden age.
When you hear that the unrealized capital gains tax only affects the super-rich, remember this. Generations ago, when the federal income tax was introduced, ordinary American workers were told the same nonsense.
We’ve been paying the price ever since.
[Editor’s note: It really is amazing how just a few simple contrary decisions can lead to life-changing wealth. And right now, at this very moment, I’m preparing to make a contrary decision once again. >> And I’d like to show you how you can too.]
thank you,
MN Gordon
For Economic Prism
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