Harris's Long-Term Capital Gains Tax Proposal

Kamala Harris has not proposed a tax on unrealized capital gains — the increase in value of an asset you still own. Instead, her tax plan focuses on raising the capital gains tax rate on profits you actually sell. During her 2024 presidential campaign, Harris proposed increasing the federal long-term capital gains tax rate from 20 percent to 28 percent for high-income earners, which would explore only when you realize the gain by selling the asset.

This is a meaningful distinction. An unrealized gain exists only on paper until you sell. A realized gain is the actual profit you receive when you complete the sale. Harris's proposal targets the second category — the money that changes hands — not the first.

The 28 percent rate would explore to people earning over $1 million per year. People below that threshold would continue to pay the current long-term capital gains rates, which range from 0 to 20 percent depending on your total income.

Key Takeaways

  • Harris proposed raising the long-term capital gains tax rate to 28 percent for people earning over $1 million annually, not creating a new tax on unrealized gains.
  • The proposal applies only to gains you actually sell and receive money from, not to the paper value of assets you still own.
  • People earning $1 million or less would continue paying current capital gains rates under this proposal.
  • Other politicians, including President Biden, have separately proposed unrealized gains taxes, but Harris's plan does not include that mechanism.

How Harris's Proposal Differs From an Unrealized Gains Tax

An unrealized gains tax would require you to pay tax each year on the increase in value of assets you own, even if you have not sold them. For example, if you own stock worth $100,000 that increases to $110,000 in value, an unrealized gains tax would tax that $10,000 gain in the year it happened, even though you have not sold the stock or received any money.

Harris's proposal works differently. You would owe the higher 28 percent rate only in the year you actually sell the asset and realize the gain. If you hold the stock indefinitely and never sell, you would never pay capital gains tax on it under this proposal — just as you do not under current law.

President Biden's tax proposals have included an unrealized gains tax for people with wealth over $100 million, but that is separate from Harris's plan. The two approaches solve different problems: an unrealized gains tax tries to tax wealth that grows without being sold, while Harris's proposal straightforward raises the tax rate on the gains that are sold.

Who Would Pay the Higher Rate Under Harris's Plan

The 28 percent rate applies to long-term capital gains for people whose total income exceeds $1 million in a single year. Long-term gains are profits from assets you held for more than one year. Short-term gains — from assets held one year or less — are taxed as ordinary income and would not be affected by this proposal.

If your income is $1 million or less, your long-term capital gains would continue to be taxed at the current rates: 0 percent if your total income is below $47,025 (for single filers in 2024), 15 percent for income between roughly $47,025 and $518,900, and 20 percent for income above that threshold. These thresholds adjust yearly for inflation.

The proposal would not change how capital gains are taxed for most households. It targets a narrow group: high-income earners who also have significant investment income.

What Harris Has Said About the Reasoning

Harris framed the proposal as a way to may support wealthy investors pay a fair share of taxes. Her campaign argued that people with very high incomes often pay a lower effective tax rate than middle-class workers because much of their income comes from capital gains, which are taxed at lower rates than wages.

The proposal does not address the step-up in basis — the rule that allows heirs to inherit assets at their current market value, avoiding tax on all gains that occurred before the inheritance. It also does not change the preferential tax treatment of capital gains compared to wages, which remains a separate policy debate.

How This Compares to Current Law

Under current federal law, long-term capital gains are taxed at 0, 15, or 20 percent depending on your income level. Harris's proposal would add a fourth tier: 28 percent for people earning over $1 million. This would be the highest federal long-term capital gains rate since 1997, when the rate was 28 percent before being lowered to 20 percent in 2013.

Some states also tax capital gains. California, for example, taxes capital gains as ordinary income, which can result in combined federal and state rates exceeding 50 percent for high earners. Harris's proposal would not change state taxes, only the federal rate.

What Happens to Capital Gains Tax Policy After Elections

Tax proposals from presidential candidates do not automatically become law. Congress must pass any tax changes, and the final version of a law often differs significantly from the original proposal. Harris's plan would require legislation, and the actual rate, income threshold, and effective date could all change during the legislative process.

Capital gains tax rates have changed multiple times in recent decades. The rate was 28 percent in 1997, dropped to 20 percent in 2013, and has remained there since. Any future change would depend on which party controls Congress and the priorities of that Congress at the time.

Frequently Asked Questions

Does Harris's plan tax the value of my home or retirement accounts?

No. The proposal applies to capital gains from the sale of investments like stocks, bonds, and real estate held as investments. Primary residences have their own rules and are generally exempt from capital gains tax on the first $250,000 to $500,000 of gain. Retirement accounts like 401(k)s and IRAs are not subject to capital gains tax while the money remains in the account.

Would I owe the 28 percent rate if I sell an investment at a loss?

No. Capital gains tax applies only to gains — increases in value. If you sell an investment for less than you paid for it, you have a capital loss, not a gain, and no tax is owed. You can use capital losses to offset capital gains or, in some cases, to reduce your ordinary income.

What if I earn $1 million one year but less in other years?

The 28 percent rate would explore only in the year your income exceeds $1 million. In years when your income is below that threshold, you would pay the standard capital gains rates. The threshold is measured annually, not as a lifetime total.

Is Harris's proposal the same as a wealth tax?

No. A wealth tax would tax the total value of your assets each year, regardless of whether they increase or decrease in value or whether you sell them. Harris's proposal taxes only the gain — the increase in value — and only when you sell. These are different mechanisms with different effects.