Democratic presidential candidate Kamala Harris is expected to propose a more moderate increase in the top capital-gains tax rate, differing from the plan President Biden outlined in his budget proposal earlier this year, individuals familiar with the discussions told the Wall Street Journal in a recent report. Harris’s team has been discussing this adjustment privately in recent days, these sources revealed. While the vice president is scheduled to speak in New Hampshire on Wednesday about supporting small businesses, it is unclear if she will address the capital-gains tax during her speech.
The tax rate being considered is 28%, though this could change, sources indicated. President Biden had originally aimed for a nearly doubled all-inclusive top capital-gains tax rate of 44.6%, which included a 39.6% top rate for regular income plus an additional 5% tax on investment income. It remains uncertain whether Harris’s 28% proposal would factor in that extra investment tax.
Harris’s advisers believe Biden’s plan pushes the tax rate too high and that a smaller increase could better promote investment and improve access to capital for small businesses. Harris’s supporters maintain that this new proposal still aligns with her goal of having the wealthy and large corporations pay higher taxes, but in a more balanced manner, according to sources.
Earlier in the campaign, Harris’s aides had indicated her support for the full $5 trillion in tax hikes included in Biden’s budget. Reducing the increase in the capital-gains tax rate would result in less revenue for her policy initiatives.
Currently, the top long-term capital-gains rate is 23.8%—comprised of a 20% base rate plus a 3.8% tax on investment income. This tax is only due when individuals sell assets and realize gains, and unrealized gains are not taxed if passed to heirs.
Biden’s budget proposes several changes to these rules. It would tax unrealized gains at the time of death, beyond a $5 million exclusion per person, and would tax unrealized gains during a person’s lifetime for those with a net worth exceeding $100 million.
Biden’s plan also aims to tax capital gains at the same rates as ordinary income—raising the top rate to 39.6% from the current 37%—for households earning more than $1 million. Additionally, the investment-income tax would increase from 3.8% to 5%, bringing the total rate to 44.6%.
Harris’s revised proposal would retain the $1 million income threshold but set a lower top rate, sources said.
Historically, the U.S. has kept capital-gains tax rates lower than ordinary income taxes for several reasons: to encourage investment and to account for the fact that some gains are due to inflation.
Moreover, since taxpayers can avoid income tax by holding onto assets until death, significantly raising the capital-gains rate could deter people from selling, possibly until a new Congress reduces the rate. Without structural reforms, simply increasing the rate by a large margin might actually lower federal revenue.
In recent years, however, Democrats have advocated for higher capital-gains taxes and changes to these rules to ensure the wealthiest households pay more. The idea of taxing wealth at the same level as wages has gained traction within Democratic circles, influencing Biden’s proposals, which have been further refined by officials.
