The Perils of Election Year Policies: A Closer Look at Proposed Tax Changes

Election years often serve as a crucible for politicians, pushing them to promise sweeping changes and ludicrous policies that can have far-reaching implications for the economy. With candidates desperate to secure votes, we see a surge in proposals that may appear appealing on the surface but carry serious consequences. The current political landscape, marked by provocative tax proposals from figures like Donald Trump and Kamala Harris, exemplifies this phenomenon.

Donald Trump’s Gimmicky Tax Cuts

Donald Trump has gained attention for proposing various tax cuts, some of which are reminiscent of a political "Santa Claus." His ideas range from eliminating taxes on tips, Social Security, and overtime pay to ambitious plans such as the complete eradication of the federal income tax. While these proposals aim to win the favor of voters, they lack the grounding of fiscal responsibility.

What is particularly concerning is that Trump has not accented any potential savings on the spending side of the budget. Instead, he promotes increased government expenditure alongside lower taxes for specific voting blocs. This tax-and-spend attitude raises questions about the sustainability of his proposed fiscal policies, fostering an environment rife with potential financial instability.

Kamala Harris’s Fiscal Redistribution Fantasies

Opposing Trump, Vice President Kamala Harris has also taken a page out of the electoral playbook by proposing major redistributive spending, amounting to several trillion dollars. While she aims to finance her initiatives with higher personal and business tax rates, many of her proposals may do more harm than good, particularly regarding economic growth.

Harris’s plan to impose a 25% tax on unrealized capital gains stands out as a radical deviation from established tax norms. Under this framework, taxpayers could be taxed on the appreciated value of their assets, regardless of whether they have been sold. This proposal raises a host of questions regarding fairness, practicality, and broader economic consequences.

Five Crucial Concerns about the Unrealized Gains Tax

1. Impediment to Investment and Entrepreneurship: Higher taxes on investment discourage savings and entrepreneurship. By taxing unrealized gains, Harris would exacerbate the current bias in the US tax code against savings, stifling innovation and hindering economic growth. When investors face additional tax burdens, they may choose to divert funds from productivity-enhancing investments, thus harming long-term economic progress.

2. Administrative Nightmare: The mechanics of a tax on unrealized gains present a daunting administrative challenge. Determining the yearly value of assets like real estate, personal property, or privately held companies would lead to lengthy disputes between taxpayers and the IRS. The complexity of valuing diverse assets could pave the way for increased litigation, implying a thriving market for tax lawyers and accountants at the expense of everyday citizens.

3. A Veiled Wealth Tax: This proposed tax may be interpreted as a backdoor wealth tax—an idea that has long been championed by the far-left but has faced significant pushback. While characterized as a tax on the wealthy, the potential for expansion to encompass a broader tax base looms large, reminiscent of the gradual evolution of the original income tax.

4. Global Precedent: It is notable that no nation has successfully implemented a tax on unrealized gains. Even some of the world’s most progressive governments have shied away from such an invasive and potentially destructive policy. This lack of precedent should give pause to anyone considering the efficacy and consequences of such a mechanism.

5. The Illusion of Exclusivity: Proponents of the unrealized gains tax argue it will predominantly affect the wealthiest 1% of the population. This narrative, however, overlooks historical precedents. The original income tax also targeted a small fraction of inhabitants but eventually expanded far beyond its initial scope, becoming a burden on middle-class families.

Why Gravitate Toward Risky Proposals?

Harris’s embrace of the unrealized gains tax might be driven by several factors. The concept has already received backing from influential figures in the Democratic Party, making it an easy addition to her policy agenda. Additionally, the potential for large revenue generation allows her to justify extensive spending plans while projecting an image of financial responsibility, albeit one founded on shaky principles. Furthermore, this proposal aligns well with the long-standing leftist narrative promoting class warfare against wealthy individuals while promising benevolent government programs.

A Dilemma for Voters

As the election looms, voters face a grim choice. Whichever candidate emerges victorious, the likelihood is high that the government’s burden will intensify. However, the proposition of introducing a transformative new tax on unrealized gains adds another layer of complexity to an already fraught fiscal future.

In conclusion, the willingness of political figures to dangle enticing yet potentially damaging policies before an electorate hungry for change is a hallmark of election years. As we navigate this terrain, it’s essential for voters to scrutinize proposed changes and consider their long-term implications for economic health and prosperity. With the stakes at an all-time high, discerning fact from fiction in campaign promises will be crucial for shaping the future of the nation’s economy.

Daniel J. Mitchell is the president of the Center for Freedom and Prosperity.