Vice-President Harris Proposes Unrealized Capital Gains Tax
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Vice President Kamala Harris has endorsed a proposal to tax unrealized capital gains for individuals with a net worth exceeding $100 million. This aligns closely with a similar plan previously put forth by President Biden.
Targeting the Wealthiest 0.01%
Harris's plan aims to impose a 25% minimum tax on the appreciated value of assets, even if they haven't been sold. This tax would apply to the ultra-wealthy—approximately 10,660 individuals in the United States, representing the top 0.01% of taxpayers. Historically, capital gains have been taxed only when assets are sold. This proposal marks a significant shift in the taxation of wealth, aiming to ensure that the richest Americans pay taxes on the increasing value of their holdings, whether or not they decide to sell them.
The Pros
1. Addressing Tax Loopholes: Proponents argue that this tax would close a significant loophole that currently allows the ultra-wealthy to grow their fortunes tax-free. The strategy often used by the wealthy—commonly referred to as "buy, borrow, die"—involves buying assets and borrowing against them without selling, thus avoiding taxes. These assets can then be passed on to heirs without any taxes being paid. By taxing unrealized gains, the plan seeks to ensure that the wealth accumulated by the richest Americans does not escape taxation entirely.
2. Fairness: Supporters of the proposal believe it would create a fairer tax system. They argue that the wealthiest individuals should pay a similar marginal tax rate on their income as high-earning workers do on their wages. Currently, the disparity between how earned income and investment gains are taxed allows the wealthy to pay a lower effective tax rate than many middle-class Americans.
3. Revenue Generation: The plan could potentially raise significant revenue—up to $503 billion over ten years, according to estimates from the Committee for a Responsible Federal Budget. Given the rising national debt, which now stands at 99% of GDP, and a budget deficit projected to reach $2 trillion, additional revenue is crucial. Without significant cuts to spending, especially in areas like Social Security and Medicare, increased taxes on the wealthy may be necessary to maintain fiscal stability.
4. Addressing Asset Volatility: While concerns about asset volatility have been raised, the proposal includes measures to mitigate these issues. For example, Biden's original plan suggests assessing the tax over five years, allowing for a more balanced approach. Some argue that average American workers already face similar financial fluctuations and are still expected to pay taxes annually on their earnings. The same principle, they argue, should apply to those profiting significantly from investments.
The Cons
1. Constitutionality: Critics of the proposal argue that it may be unconstitutional, potentially sparking legal challenges. The idea of taxing wealth that has not been realized through a sale raises questions about the legality of such a tax under the U.S. Constitution.
2. Complexity and Practicality: Implementing this tax could prove to be extremely complicated. Opponents warn of potential market distortions and the difficulty of accurately valuing assets annually. While public company stocks may be straightforward to assess, valuing privately held companies, real estate, and other non-liquid assets could become a significant challenge, leading to disputes and administrative burdens.
3. Asset Volatility: There is concern about taxing unrealized gains on assets that might later lose value. If the market declines, individuals could end up paying taxes on wealth they never actually realize, leading to potential financial strain for those affected.
4. Potential Expansion: Some worry that while the tax currently targets only the ultra-wealthy, it could be expanded over time to affect more Americans. What starts as a tax on the richest few could, critics fear, eventually impact a broader segment of the population.
5. Valuation and Implementation Issues: Valuing assets every year for tax purposes could be a logistical nightmare. While public stocks are easy to assess, other assets, like art or private businesses, present a significant challenge. Disputes over valuation are common in tax cases, and the IRS may not currently have the resources or expertise to manage such a system effectively.
6. Limited Revenue Potential: Despite the significant revenue projections, critics argue that the tax may not raise as much money as hoped. Some of the revenue would merely be shifted forward rather than representing a long-term increase. Moreover, European experiments with wealth taxes have largely failed, suggesting that such a tax might not work as intended in the U.S. context either.
As many of you know, I believe this proposal could drive innovation out of the U.S. and deter some of our biggest GDP contributors. This plan carries strong overtones of communism, suggesting that the government is more capable of redistributing wealth than the market-driven benefits created by successful businesses through employment. History offers numerous examples where similar approaches have failed to deliver the intended results.
On the other hand, Trump is currently in discussions with Elon Musk about ways to reduce government spending and improve the efficiency of how IRS-collected revenues are used. These efforts could potentially yield savings far greater than the $503 billion a year projected by this tax bill. When it comes time to vote, choose wisely.
This Week By the Numbers 📈
💰Financial Markets
Stablecoin market cap reaches all-time high of $168B
Credit card delinquencies rise at the fastest rate since the 2008 financial crisis
Nvidia shares drop 7% despite strong Q2 results and Q3 forecasts
Dollar General stock plummets 32% after missing Q2 estimates
Crypto price surge creates 88,000 new millionaires in 2024
Celsius distributes $2.5B to 251,000 creditors during ongoing bankruptcy proceedings
Trump's fourth NFT trading card collection generates $1.7M in 24 hours
PCE price index meets expectations at +0.2% monthly, +2.5% annually
$2.8 trillion asset manager Goldman Sachs fires 1,300 employees
⚖️ Legal and Regulatory Developments
Judge rules Kraken must face SEC lawsuit over unregistered securities allegations
Musk wins dismissal of Dogecoin manipulation and insider trading lawsuit
Uber fined €290M by Dutch regulators for EU-US data transfer violations
Former Kansas Bank CEO sentenced to 24 years for $47M embezzlement
Moody's warns of potential significant ratings impact on Israel from conflict
Musk expresses support for AI safety bill
Brazil says anyone caught using a VPN to access X (Twitter) will be fined up to $8,874 per day
Brazil officially bans X (Twitter)
🌍 Global and Political Updates
Trump aims to make US the "crypto capital of the planet"
Russia to allow international crypto payments starting next week
Pavel Durov released from custody after posting €5M bail
TON cryptocurrency falls 20% following Durov’s arrest in France
TON network experiences two outages due to DOGS token launch
Bank of China President Liu Jin resigns unexpectedly, citing personal reasons
Bloomberg integrates Polymarket's US election odds into its platform
🚀 Tech and Innovation
Google Meet introduces AI-powered "take notes for me" feature
Starlink to offer free global emergency services access for mobile phones
Apple CFO Luca Maestri to step down
Apple reportedly in talks to invest in OpenAI
76% of Nvidia employees report millionaire status in recent survey
Top Stories 🗞️
France Reveals Charges Levied Against Telegram CEO Pavel Durov
On Aug. 26 press release from the Paris Public Prosecutor's Office confirmed that Durov is accused of complicity in a slew of cybercrimes for failing to maintain a content moderation program on Telegram. The charges include “complicity [in] acquiring, transporting, possessing, offering, or selling narcotic substances… complicity [in] web-mastering an online platform to enable illegal transactions by an organized group… complicity [in] possessing child pornography, [and] complicity [in] distributing, offering, or making available pornographic images of minors in an organized group.” Durov is also accused of refusing to provide information requested by authorities, facilitating cybercrime, organized fraud, and money laundering, and offering tools for unregulated cryptocurrency. The legal term "complicity" refers to aiding, assisting, encouraging, or involvement with the commission of a crime. Although Durov is not directly accused of committing the crimes, his decision not to enforce content moderation on Telegram is alleged to have enabled criminal activity.
Nasdaq wants to launch a Bitcoin index options, seeks SEC approval
American stock exchange market Nasdaq is reportedly seeking the approval of United States regulators to launch options on a Bitcoin index.
On Aug. 27, the exchange operator announced that it wants to have index options on a Bitcoin index to give institutions and traders a different way to hedge their exposure to Bitcoin. Bitwise chief investment officer Matt Hougan said in the report that it’s important to have options for BTC for the asset class to be fully normalized. The executive said there is a missing piece in the “liquidity picture,” which would be provided by exchange-traded fund (ETF) options.
MakerDAO Is Now 'Sky' as $7B Crypto Lender Rolls Out New Stablecoin, Governance Token
MakerDAO, one of the oldest and largest decentralized finance (DeFi) lenders, is getting a new name and new tokens as part of its on-going revamp. Maker has rebranded to "Sky," according to a press release on Tuesday. The protocol, which has $7 billion of assets, will also introduce new versions of its $5 billion stablecoin (DAI) and governance token (MKR), called the USDS stablecoin and the SKY governance token.
DAI and MKR will stay in circulation unchanged, with the new tokens existing in parallel. Token holders will be able to exchange DAI tokens 1:1 for USDS, while each MKR token can be swapped for 28,000 SKY tokens. The new tokens will be issued on Sept. 18, and holders can voluntarily choose to keep the old tokens or exchange for the new ones. MKR's price gained over 4% immediately after the news, and is up 2% over the past 24 hours, outperforming bitcoin (BTC) and the broad-market crypto benchmark CoinDesk 20 index (CD20).
OpenSea Gets 'Wells Notice' From SEC, Which Calls NFTs Sold on Platform 'Securities'
Non-fungible token (NFT) marketplace OpenSea received a notice from the U.S. Securities and Exchange Commission (SEC) that it intends to pursue an enforcement action, the company disclosed on Wednesday. "OpenSea has received a Wells notice from the SEC threatening to sue us because they believe NFTs on our platform are securities," OpenSea's CEO Devin Finzer wrote on social media platform X. "We're shocked the SEC would make such a sweeping move against creators and artists. But we're ready to stand up and fight," he added.
Wells notices are preliminary warnings that inform respondents of the charges the regulator is considering bringing against them. They usually lead to enforcement actions. Finzer said his company will fight the notice and pledged $5 million to help cover legal fees for any NFT creators and developers that may also get such a notice.
Former OpenAI researchers warn of 'catastrophic harm' after the company opposes AI safety bill
Two former OpenAI researchers are speaking out against the company's opposition to SB 1047, a proposed California bill that would implement strict safety protocols in the development of AI, including a "kill switch." The former employees wrote in a letter first shared with Politico to California Gov. Gavin Newsom and other lawmakers that OpenAI's opposition to the bill is disappointing but not surprising. They continued: "Developing frontier AI models without adequate safety precautions poses foreseeable risks of catastrophic harm to the public." OpenAI CEO Sam Altman has repeatedly and publicly supported the concept of AI regulation, Saunders and Kokotajlo wrote, citing Altman's congressional testimony calling for government intervention, but "when actual regulation is on the table, he opposes it."
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Tatiana Koffman
About the Author: Tatiana Koffman
Hi there and thanks for reading! If you stumble upon my newsletter, you will notice that I write about money, economics, and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital, and Cryptocurrencies. I write to make financial topics more accessible and create equal opportunity for the next generation of investors. Currently working as a proud General Partner at Moonwalker Capital.
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