Kamala Harris Capital Gains Tax: Changes To Expect

Despite campaign promises, Congress changes the tax code—not the president.

And given the current political climate, we can expect legislative debate when the Tax Cuts and Jobs Act sunsets at the end of 2025.

Still, Kamala Harris has supports changing the way capital gains are taxed, so I’d like to talk about how those changes affect us as investors.

As a reminder, capital gains tax is applied to the profit earned when an asset, such as stocks or property, is sold at a higher price than it was originally purchased. This tax primarily affects middle- to high-income earners who have investments in various assets. 

Under current tax policies, capital gains are taxed only when gains are "realized" — that is, when the asset is sold and the profit is confirmed.

For American W2 employees and 1099 earners with high incomes, this tax represents a critical component of financial planning. Avoiding a significant tax bill when liquidating assets is crucial to building and preserving wealth.

Expected Capital Gains Tax Rates for 2025

Under Kamala Harris’s tax proposals, the capital gains tax landscape will shift substantially for high-income earners. A new long-term capital gains rate of 28% could apply to individuals earning over $1 million annually. This adjustment is a significant increase from the current top rate of 20%, making it more important than ever for high-income earners to understand how to use legal structures to protect their assets. 

Harris's Broader Economic Goals and Tax Policy Objectives

Harris’s tax policy proposals aim to generate revenue for social programs, promote wealth redistribution, and stimulate the economy for low- to middle-income families. These objectives are part of a larger fiscal policy effort to address wealth inequality and expand benefits for working families.

To fund these initiatives, the plan includes raising corporate and high-income individual taxes. The proposed policies align with Harris’s broader economic vision of using tax policy as a tool to level the economic playing field while still promoting growth through targeted credits and exemptions.

Key Capital Gains Tax Changes for High-Income Earners

Increased Taxes on Capital Gains for the Wealthiest

For those with an annual income over $1 million, the proposed capital gains tax rate would rise to 28%, marking one of the highest rates in recent history. This change would specifically impact high-income households, making it important for these earners to plan around the new rate. Harris also supports raising the net investment income tax (NIIT) from 3.8% to 5% for top earners, increasing the overall tax burden on investment income.

Introduction of a Minimum Tax on High-Net-Worth Individuals

A significant component of Harris’s proposal includes a 25% minimum tax on ultra-high-net-worth individuals with over $100 million in assets, covering both realized and unrealized gains. This policy focuses on wealth accumulation that may otherwise escape taxation under traditional income tax structures. While some experts express concerns about the technical aspects of taxing unrealized gains, Harris argues it is a necessary step toward addressing economic inequality.

Corporate and Business Tax Adjustments

The Harris tax plan also targets corporate taxation. Her proposal includes raising the corporate income tax rate, increasing taxes on stock buybacks, and expanding global intangible low-taxed income (GILTI) regulations. These measures aim to ensure that corporations contribute their fair share, offsetting the high-income earners’ tax relief while preventing tax avoidance by companies with substantial foreign earnings.

These changes could indirectly affect high-income individuals who rely on dividend-paying investments. Understanding the full impact on corporate taxation is key for those in high income brackets, as adjustments could influence corporate profits, stock valuations, and, consequently, the value of investment portfolios.

Changes in Inheritance and Estate Tax Policies

Harris proposes changes to the treatment of unrealized gains upon inheritance. The current “step-up in basis” provision, which allows inherited assets to be valued at their current market price (thus avoiding capital gains tax), would be adjusted. 

Under the Harris plan, unrealized gains would be subject to taxation at the time of inheritance, potentially reducing the wealth passed down and increasing tax liabilities for beneficiaries.

For estate planning purposes, high-net-worth individuals may need to reassess how they transfer assets to future generations. The policy is aimed at ensuring that large estates contribute more in taxes, though it includes exemptions for smaller estates.

Expanded Tax Credits and Social Incentives

Aside from changes to the way capital gains are taxed, Harris is proposing the following tax changes:

Increased Child Tax Credit (CTC)

Harris plans to expand the Child Tax Credit (CTC), particularly for families with newborns. This increase is part of a broader effort to support low- and middle-income families. For high-income earners with children, these expansions could provide additional tax benefits.

Permanent Earned Income Tax Credit (EITC) Expansion

Harris proposes a permanent expansion of the Earned Income Tax Credit (EITC), which primarily benefits low-income workers, particularly those without children. While this credit is not targeted at high-income earners, it represents a shift toward policies that support economic security for a broader population.

First-Time Homebuyer Credit

A tax credit for first-time homebuyers is also on the table, aimed at assisting new homeowners in building equity and long-term wealth. This incentive aligns with Harris’s broader economic goals by enabling more Americans to build financial security through homeownership.

Projected Economic and Revenue Impact of the Harris Plan

Nobody has a crystal ball, but we can make some educated guesses about how these changes might affect our investment strategies as well as the economy overall:

Economic Growth Concerns

The proposed increases in capital gains and corporate taxes may slow economic growth in the short term. Economists project a possible decrease in GDP and employment as a result of higher costs for businesses. However, Harris’s team argues that the benefits of redistributing wealth and funding social programs will outweigh these impacts over time.

Revenue Projections and Impact on National Debt

Harris’s tax plan is projected to generate $4.1 trillion in revenue over a decade, even after accounting for various tax credits. This revenue is critical for funding the proposed social programs and reducing the federal deficit. However, the expected economic slowdown could partially offset these revenue gains, resulting in a net revenue increase of approximately $642 billion over ten years.

Challenges and Criticisms of Harris’s Capital Gains Tax Proposal

Some critics argue that higher capital gains and corporate tax rates could reduce the U.S.’s global economic competitiveness. Increased taxes on corporations could lead some companies to relocate or adjust their structures to mitigate tax impacts. This potential decrease in competitiveness is a concern for both policymakers and high-income earners who rely on corporate investment returns.

The introduction of new taxes, including those on unrealized gains, make an already intricate tax code even more of a headache. High-income individuals may face increased compliance costs and administrative burdens. 

Those in high-income brackets will need to work closely with tax professionals to ensure compliance and optimize tax strategies.

Harris’s plan aims to reduce the federal deficit, but the projected economic slowdown and potential job losses could undermine these goals. Balancing revenue generation with economic stability remains a challenge, and it is uncertain how these policies will affect the deficit long-term.

Capital Gains Tax Strategies for High-Income Earners

Offsetting Gains with Losses

One of the most effective strategies for managing capital gains tax is to offset gains with losses. High-income earners can strategically sell underperforming assets to offset gains, reducing their tax liability. This approach is known as tax-loss harvesting and can be especially beneficial under higher capital gains rates.

Leveraging Tax-Advantaged Accounts

Using tax-advantaged retirement accounts like IRAs and 401(k)s can defer or minimize capital gains tax. By holding investments within these accounts, you can avoid immediate capital gains taxes, allowing your investments to grow tax-free or tax-deferred until retirement.

Working with Financial Professionals

Navigating these new tax policies will require careful planning. High-income earners should consult with tax professionals to identify the best strategies for minimizing capital gains taxes and maximizing after-tax returns. 

Proper planning can help you align your investment strategy with your financial goals while staying compliant with evolving tax laws.

Conclusion: Harris’s Balance Between Revenue and Economic Growth

Kamala Harris’s capital gains tax proposal represents a significant shift in how investment income could be taxed in the future. By targeting ultra-high earners and large estates, her plan seeks to balance revenue generation with social equity. However, these changes introduce new complexities and challenges for high-income earners.

As the 2024 election approaches, understanding these potential tax changes is crucial for those seeking financial freedom and long-term wealth. With careful planning and a proactive approach, high-income earners can adjust their strategies to adapt to the new tax landscape.