(Cupventi.com) – The Harris campaign recently revived discussions of taxing unrealized capital gains, a proposal to tax stock owners based on the increased value of their holdings, even if the stocks haven’t been sold. This policy, while appearing to target the ultra-rich, carries significant long-term risks for average Americans.
Historically, taxes introduced under the guise of targeting the wealthy have trickled down to the middle class. A notable example is the federal income tax, which was initially aimed at the rich in 1913 but has since evolved into a tax burden shared by millions of Americans. The progression of tax policies reveals a pattern of these policies expanding far beyond their original targets, often during times of crisis like war or economic instability.
The mechanism behind this “trickle-down” effect is complex but ultimately tied to political realities. Politicians, reliant on wealthy donors and organized interest groups for campaign funding, are incentivized to protect the rich. Over time, these interest groups influence tax policies in ways that shift the burden from the wealthy to the middle class. Even though wealthy individuals may still pay the highest percentage of taxes, incremental changes, often introduced during emergencies, ratchet up the tax burden for everyone else.
For instance, the income tax that began by targeting a small fraction of the wealthiest Americans eventually engulfed the broader population as thresholds were lowered, deductions reduced, and new brackets introduced. The same fate could await the unrealized capital gains tax. Today, it might start with billionaires, but in the future, it could impact middle-class workers and retirees with 401k plans, especially if faced with another national crisis.
This “ratchet effect,” a term coined by economist Robert Higgs, suggests that once a tax is implemented, it’s unlikely to be reversed. Instead, taxes escalate and trickle down to lower income brackets. The wealthy, often better able to lobby and evade these burdens, pass them down to everyday citizens. Harris’s proposal for taxing unrealized capital gains should be understood as part of this pattern, one that eventually could harm middle-class savings.
The bottom line: Fighting the introduction of new taxes, such as those on unrealized capital gains, isn’t just about protecting the rich; it’s about safeguarding middle-class Americans from future tax burdens that will inevitably come.