My Thoughts On Paying Higher Taxes | Kamala Harris Tax Plan

So first of all, let me just say this: initially I was not planning to make a video on this topic because, one, I really dislike involving politics on the channel; two, I don't want anything I say to be taken out of context; and three, I just don't know how much interest there'd be to watch an entire video about tax increases. But hey, you know what? I've been wrong in the past about which videos people enjoy watching, especially when one of my first viral videos ever was me just unboxing a credit card. So here I am, going out on a limb to talk about a topic I feel very strongly about, and that would be higher taxes.

That's right! Just like everybody else, I saw the headlines about a brand new 45% capital gains tax rate, expiring middle class tax cuts, and otherwise bringing the highest tax rate for many in a century under Biden's latest proposal. As a result of that, I spent the last two weeks researching everything that I could, including reading all 256 pages of fine print. And just like I expected, there's a lot being left out. There's a lot of misinformation being spread around as fact. If you want the truth as to how this pertains to you, keep watching. Because when it comes to a proposal like this, I am largely the person it's directed to. After all, I'm in the highest tax bracket, I'm self-employed, I invest a lot of my money, and I own property. I'm the problem!

Okay! Jokes aside, I'm not looking for any pity or anything, but this is worth breaking down to go over exactly what's going on and how this is going to affect you. Because chances are, if you make any amount of money whatsoever and you live in the United States, this is going to affect you in one way or another. And by the way, since this tends to be a politically charged topic, I want to make it clear: I don't go into politics, I don't pick sides, I just stick with the facts of what's in front of us, and that's it. So if that sounds good to you, all I ask in return is that you hit the like button or subscribe. That gives me a really good indication if these are the types of videos you want to see more of!

Thanks so much! And also, big thank you to InVideo AI for sponsoring today's video, but more on that later. Let's just begin here. First, let's talk about the capital gains tax rate of 44.6%. As it stands right now, capital gains are really broken into two categories: short-term and long-term. In this case, short-term capital gains are really easy to calculate. If you hold an investment for less than a year and you sell that investment for a profit, those profits are taxed as though you made ordinary income in your normal tax bracket.

So, for example, if you make $100,000 a year and you make another $20,000 as short-term capital gains, you're paying a 24% federal income tax in addition to state taxes, depending on where you live. However, if you hold an investment for longer than a year, here's where the magic happens: if you're single and you make under $47,000 a year, you will pay no capital gains tax whatsoever. If you make under $518,000 a year, you'll pay just 15% capital gains tax, and for anything earned above $518,000, you'll just pay a flat 20% capital gains tax up to infinity.

This means, theoretically, if you live in a state with no income taxes, you could pull out $100 million worth of long-term capital gains, pay a flat 20% in tax, plus a 3.8% net investment tax on the income above a million dollars, and all of a sudden, you're paying 133% less than a person with earned income. But as written in the latest filing, long-term capital gains disproportionately benefit high-income taxpayers and provide many high-income taxpayers with a lower tax rate than many low and middle-income taxpayers. And this could soon change.

This new proposal would tax long-term capital gains at the ordinary income tax rates, which in this case would be 39.6% on incomes over a million dollars a year. In addition to that, they would also increase the net investment tax to 5% on incomes more than a million dollars a year, and that would bring the total long-term capital gains tax rate to 44.6%, up from the 23.8% where it currently stands. Of course, it is also important to mention that this only applies to federal income tax, and state taxes would be extra on top of that. So if you live in a state like California, add in another 14.4%, and theoretically, you'd be paying as high as 59% long-term capital gains tax, which is absolutely wild!

Like, as an example, let's just say your parents bought a house for $400,000 in 1995, and now it's worth $3 million because they hit the location lottery in Boton Venice Beach before Snapchat moved in. In this case, if they're married and they decide to sell the home to pay for their retirement, assuming the $500,000 capital gains exclusion, they'd be required to pay tax on $2.1 million worth of profit, of which more than half would be taxed at 59%. This means that the state and government would make more money from the sale than the actual homeowner who did the ongoing investment in the first place.

Of course, I understand there's a lot of people out there who want to make the argument as well that long-term capital gains are just too low to begin with. There's no reason long-term capital gain should be lower than that of wage income. But before we go into my own thoughts on this and why it doesn't make any sense, let's go into some of the other proposed changes, because this is really just the very beginning.

The second proposal would aim to increase the tax rates on those making over $400,000 a year from 37% to 39.6%. See, like I mentioned earlier, the Tax Cuts and Jobs Act lowered the tax brackets across the board for everybody. So if you worked a job, chances are you're taking a little bit more money home than you did before. But this new proposal would aim to eliminate the Tax Cuts and Jobs Act entirely and, as they say, correct the inequalities created by Trump tax cuts and raise additional revenues.

After all, according to their studies, they say that the wealthiest 5% of households receive nearly half of all the Trump tax cuts, with the top 0.1% receiving an average tax cut of $193,000 in 2018. Now, here's the truth: when it comes to this, even though this is aimed at incomes over $400,000 a year, the reality is if the Tax Cuts and Jobs Act is eliminated entirely—which is heavily implied—then all tax brackets are going to be going up regardless of how much money you make. Like, just pause the video here, find your income range, and you'll be able to see approximately how you might be affected.

Of course, there are some extra details to this that are very important to mention, but we'll talk about that a little later because I really want to go into the major bullet points first before going into my own thoughts. But as far as the next one is concerned, this one is by far the most controversial, and that would be a 25% wealth tax even on assets you haven't sold yet.

But before we go into that, I just want to say that as someone who's been making YouTube videos now for over 7 years, there is a lot that goes on behind the scenes to make a video that you're watching now. Like, most people don't see all the research, script writing, filming, post-production, editing, description, title, and thumbnail planning and analysis that goes into each and every video I post multiple times a week. But that is where our sponsor, InVideo AI, is there to help.

They could take any idea and help you create a publish-ready video in your own voice with just text-based prompts and editing. For example, let's just say I want to create a video on how to buy a home in 2024 to be posted on YouTube in an educational tone for someone starting out with no money. Well, from there, InVideo AI will create an engaging script, find high-quality relevant footage, add subtitles, include a human-sounding voice-over, and within minutes, you'll get to see the first cut of your video.

Lastly, never underestimate the power of negotiation! You could also give it simple text commands to make any changes. So if there's something you don't like, no problem—just ask to change it! If you don't like the intro, ask to start the video in a different way. If you don't like a particular moment of B-roll, you could quickly edit that out with something else. What's even more remarkable is that you could upload a simple 30-second clip of your voice, giving InVideo AI permission to clone it, and then your voice could be used throughout your other projects. Like, this isn't even my real voice right now!

So if you're interested in checking it out, you can get started today for free and create up to four videos a week. But if you'd like to clone your voice and create videos without a watermark, then I'd highly recommend choosing the paid plan that starts as low as $20 a month. This also saves you hundreds of dollars that you'd otherwise have to spend on editing tools and stock footage subscriptions since they have it automatically included. So feel free to check them out today by visiting the link in the description or scanning the QR code that's on the screen. Enjoy! And now let's get back to the video.

All right, so in terms of the most controversial from all of this, we have, third, a 25% wealth tax even on assets that you haven't sold. For those unfamiliar, here's how it'll work and why this is such a big deal. As they say—and I'm quoting from their website—billionaires make their money in ways that are often taxed at lower rates than ordinary wage income or sometimes not taxed at all, thanks to giant loopholes and tax preferences that disproportionately benefit the wealthiest taxpayers. But here's the thing: when you look at this objectively, the problem is that this only applies if you were to tax unrealized capital gains, which at best means it's unprecedented and at worst it's unconstitutional.

Like, just consider this: if you make a $1,000 investment and that investment grows to $5,000, you're not taxed on that $4,000 worth of profit because you haven't sold. After all, your investment could just as easily decline in value. So until you lock in those profits, it's not guaranteed. However, in this proposal, they want to tax unrealized capital gains on any wealth over $100 million, which is not only impossible to implement but imagine being forced to sell shares to pay a tax on something you never intended on selling to begin with.

Of course, the White House does address this in their fine print by saying that payments of the minimum tax would be treated as a prepayment available to be credited against subsequent taxes on realized capital gains to avoid taxing the same amount of gain more than once. Or, I guess if that sounds confusing, they're suggesting that if you're worth a billion dollars, your $250 million tax bill would be paid up front in annual installments, and then when you actually sell, the amount of tax that you paid would be credited towards the rest of the amount that you owe, which they're saying would be 44.6% total.

Now, in terms of how they'd actually calculate someone's worth above $100 million, it's a bit of a mess. They said that taxpayers with wealth greater than the threshold would be required to report to the IRS on an annual basis, separately by asset class, the total base and total estimated value as of December 31st. Non-tradable assets, on the other hand—like art, maybe some real estate, collectibles, or businesses—are going to be valued based on their cost basis and then increased each and every year by the 5-year treasury rate plus two percentage points, which right now equates to an increase of 6.65% each and every year.

This means on a $100 million net worth, you'd be taxed as though you've just made $6,650,000 a year, which at a 25% tax rate means that you'd be spending an extra $1.6 million a year out of pocket, even if you don't sell anything. The second to that slight tangent, but they also pointed to the narrative that many of these wealthy Americans are able to pay an average income tax rate of just 8% of their full incomes—a lower rate than many firefighters or teachers—which, like I mentioned earlier, is only true if they were counting in unrealized capital gains. It would be kind of like saying your home went up in value $200,000 this year and you only paid $116,000 in taxes from your $50,000 a year job. That's only a 6% tax rate; that's why I think it's quite misleading in terms of how this is worded.

Especially since the top 1% is responsible for paying 42% of all taxes. But on a more practical level, let's just be real: taxing unrealized capital gains is going to be an impossible tax! The Supreme Court previously ruled that under the 16th Amendment, there must be some actual transfer of rights before Congress can even tax appreciation as income, and it'll be a massive waste of resources for everybody involved if they actually went through with this.

Although, in fairness, there are some other proposals that do have a slightly higher chance of passing. Like, number four: they want to limit the 1031 exchange to $500,000 for each taxpayer. See, for those unfamiliar, as it stands right now, Section 1031 is a part of the tax code that allows you to buy an investment property and then later sell it or exchange it for another more expensive property in the future without being taxed in the process. And if that sounds confusing, here's a really basic example: let's just say you buy a 2-unit duplex for $500,000, but 10 years later that duplex is now worth $2 million, and all of a sudden you want to use that profit to go and buy a larger, more expensive $4 million building instead.

Ordinarily, if you were to go and sell that duplex as is, you'd be responsible for paying taxes on that $1.5 million of profit, which at a 20% tax rate means you'd be left over with $1.2 million to roll into something else. However, if you were to qualify for a 1031 exchange, you could go and sell that building for $2 million, not pay any capital gains tax up front, and instead roll the entire amount over to a new more expensive property where you could start the process all over again. The expectation here is that by allowing you to exchange one investment property for another, it financially incentivizes you to consistently trade up to something more expensive.

It resets the property tax basis every time you buy something new, increases inventory on the market, the higher turnover provides a lot of money to contractors, real estate brokerages, escrow companies, title companies, and insurance companies, and most importantly, it just prevents people from buying a property, sitting on it forever, and never selling it. However, like I mentioned earlier, this new proposal would cap the amount that you could defer in taxes up to $500,000 in profit per taxpayer, and then anything else would be taxed as long-term capital gains at the new tax rate.

So how would this affect the real estate market? Well, in 2015, a study was done that looked at the implications of 1031 exchanges on the overall economy, and they found that the 1031 exchange led to more liquidity on the market because owners were incentivized to sell. That helped stimulate job creation, investment, and economic growth. Second, it was also found that nearly 88% of exchanged real estate was eventually disposed of in a taxable sale, resulting in substantially more tax being paid than would have been due had the exchange not occurred.

That's because the 1031 exchange financially incentivizes owners to keep fixing up their properties and keep trading up to more expensive areas, whereas otherwise they would just probably keep the same property, do the bare minimum investment, and then just keep it forever. As a result of that, taxable revenue from a 1031 exchange was found to be 19% higher than a non-1031 exchange, largely because the owners spent a lot more money on their properties to the tune of 27 to 40 cents per square foot. Not to mention, every single time a property is sold, the tax basis is adjusted to the new value, so the more people buy and sell, the more revenue is generated and the higher the property taxes are.

So that's why the fear comes: if 1031 exchanges are capped at $500,000, what's the effect going to be? One argument is that property owners would be less incentivized to sell, and as a result of that, less property tax revenue is going to be generated. Another argument is that property owners would be less incentivized to maximize the value of their property by fixing it up or doing any sort of remodels. So because of that, jobs in contracting, landscaping, or construction could decline. It could also drive more demand for less expensive homes because investors would rather see 100% return on their money buying a $500,000 home and selling it for a million than buying a $5 million home and selling it for 5.5 million.

If this happens and investors begin favoring smaller deals and competing with normal, average, everyday home buyers, that could drive up prices even further beyond where they are now. And lastly, most likely this is further going to reduce inventory on the market because sellers would be less incentivized to sell. Instead, it would make them more money just to keep it as is— not sell, keep the place forever, and just maximize rents. But don’t you worry! This doesn’t just impact real estate investors; it also impacts those who are invested in stocks.

Because they're also proposing a 4% tax on stock buybacks. See, for those unfamiliar, if a company has excess profit, they could do one of three things with the money. They could either invest it into expansion by growing the business, they could issue a dividend, or they could invest in a share buyback by buying back their stock at fair market value. And that, in turn, increases the price of each share. It's really no different than a $100 stock paying a $1 dividend or not paying the dividend and then buying back their shares so that the price goes to $101. In both cases, you as the investor gain $1 of value, but in the case of the stock buyback, your share price increases, and you're not taxed on that $1 worth of gain until you sell.

And that, of course, is under fire! It's really no surprise that over the last 10 years companies have engaged in a record amount of stock buybacks as a way to provide value to shareholders and give an efficient return to those who don't want to be taxed on it. But this new proposal would charge a 4% tax on stock buybacks to further incentivize the company to reinvest back into their infrastructure and workforce instead. However, even though this sounds like a good faith, reasonable effort, a Tax Foundation analysis found that anytime a company has more money than they could reasonably use, they either hold on to it and do nothing with it, or they return the value to shareholders.

In this case, companies do everything they can to expand as much as possible and then give value back to shareholders—and not the other way around. Not to mention, if capital gains tax rates were increased to 39.6%, stock buybacks would actually lead to an increased revenue from all the shares and value being created from people who sell, so you'd want that to happen. On top of that, though while we’re on the stock topic, they also want to increase the corporate tax rate from 21% to 28%.

See, initially, it was thought that if you lowered the corporate income tax rate, more companies would move their headquarters to the United States, they'd invest more into infrastructure, they'd hire more employees, and that would be good for the economy. This is why, prior to the 21% tax rate we're paying now, corporate taxes used to be 35% as early as 2016. So an increase to 28% is still not as high as it was barely just a decade ago. Although recently, even though more money did flow back into U.S. economies, economists argue that lower corporate tax rates simply meant that corporations were able to issue more stock buybacks, which raised the prices of stocks, which was really good for investors, but not so good for everybody else.

Now, if this tax rate does get increased to 28%, it is unclear if maybe that means that corporations are going to pass the additional cost on to the consumer in the form of higher prices, maybe they lower wages to their employees, or they stop issuing stock buybacks, which could impact the performance of the stock price. It's also theorized that a higher corporate tax rate would put America at a disadvantage in attracting investment and jobs, although the truth is economic theory is all over the place, and it's way too early to tell exactly how this would play out in the real world.

Oh, and lastly, there are a ton of other small changes that are just too nuanced for me to go into too much detail on, but rest assured, I read through all 256 pages, so you don't have to! And here are some of the ones that stood out the most: on page 84, they called for a 1.2% increase on Medicare tax on those making over $400,000 a year; on page 99, they'd force those with more than $10 million in retirement accounts to withdraw 50% of all assets above that amount; on page 108, they'd permanently forgive student loans for those who fall within a certain income; on page 140, they'd increased taxes on business write-offs; and several more pages of random changes that are almost certainly going to affect you in one way or another.

So in terms of my own thoughts on this, coming from someone who this directly affects on so many levels, here's what I honestly think: on the surface, raising the top tax rate from 37% to 39.6% is not a big deal whatsoever. This was meant to happen anyway; the Tax Cuts and Jobs Act was meant to be temporary. It was expiring at the end of 2025 anyway as it currently stood, so this is not a big deal. And for those making over $400,000 a year, they'll be totally fine.

However, the biggest impact, I gotta say, would be raising the capital gains tax rate to 44.6% for those making over a million dollars a year. And like I said, this would affect me directly. Like, right now, one of the big reasons for me to go and invest my money is because of the preferential treatment for holding those investments long-term. Like, I'm taxed at 37% on all the income I make, but if I go and invest that money, I'm taxed at 23.8% after the net investment tax, which is significantly lower.

On top of that, there's also a reason why capital gains are taxed at a much lower rate than earned income to begin with: because, one, you're taking on risk anytime you make an investment, and that investment could also lose money; two, your overall returns are eroded and eaten away by inflation; and three, you're taxed on the money that you invest, and then you have to pay taxes in addition to the taxes you've already paid. This is why capital gains taxes are reduced—to compensate for tying up money, taking on risk, and then having that risk be eaten away by inflation, which is not good as they print more money into the economy.

Ultimately, if this passes, it's going to affect a lot of people in terms of how they invest, where they invest, and how they structure their taxes. To the point where I have a feeling, instead, most people who hold investments just aren't going to sell. For example, one of the wealthy tax strategies out there is to simply borrow against your investments because loans against assets are not treated as taxable income. Therefore, it's a lot cheaper to pay the interest rate on a loan than it is to pay taxes on realized capital gains.

As an example of that, let's just say I have $10 million in the stock market, and I want to spend a million dollars of that. If I sold a million dollars of the profit, I'd be paying a 44% tax rate, but if I borrowed money against that, I'd pay maybe 6%, and I'm not taxed on that. So 6% is a lot cheaper than paying 44% upfront, and I'd have more money left over to continue having invested. Beyond just my opinion, though, studies have actually shown that the optimal capital gains tax rate is 28%. This is the amount that would maximize revenues and cooperation without causing people to run to the hills.

And this, anecdotally, I agree with! I think a progressive long-term capital gains tax rate that goes from 20% to 24% to 28% on incomes from a million, five million, and $10 million would go a long way. No one would question it. But going from 23.8% to 44.6%? It's just too big too soon. Next, as far as increasing the corporate tax rate from 21% to 28%, my biggest concern is that some of that cost is going to get passed on to the consumer.

It also doesn't guarantee that corporations won't just lay off more people or reduce salaries to keep their profits the exact same. Like, while the 21% corporate tax did provide businesses with a lot of extra money to boost their share prices, I think a slower, more progressive approach would be taken a lot better in this case. Maybe a 23% corporate tax rate could soften the blow, and then over time, it goes to 25%, then over time it goes to 28%. But give businesses enough time to adjust without doing anything radical. I just think if businesses spend more money, the cost is going to come from somewhere; it's not going to appear magically.

Something is going to change, and it's just thinking what side effects are worth taking from this. My thoughts on everything else, though, certainly become a lot more nuanced because overall, my opinion is this: I don't mind paying higher taxes if that money goes towards something useful and is properly accounted for. If all of this tax money is recklessly spent and mismanaged, then no, I don't want to spend more in taxes. But if there's a net benefit to everybody involved, then it's a lot easier to justify.

I think a better solution here would be to fully audit all government expenditures, do a full analysis on what gets the highest return, reduce spending in certain categories as needed, apply funding to other categories if they desperately need it, and then raise taxes. Lastly, if absolutely required to pay for something that they don't already have the money for. This way we know our money is going as far as it possibly can, we could see exactly how it's being spent, and we know if we spend something it's going to something useful.

I'll admit it's probably extremely unrealistic! It'll probably never happen, but I could remain hopeful. Now lastly, the final aspect I want to talk about is the likelihood of this actually passing, because realistically, it's going nowhere. And a lot would have to happen for this to actually get pushed through. However, with that said, the Tax Cuts and Jobs Act is expiring in 2025, so a lot of these tax benefits are going to be cut completely, and something will have to be done—either it continues as is, or a new proposal goes in its place. And who knows exactly what's going to be in it? Will it be this? Probably not.

I tend to think this is just political theater to simply blame the rich for government spending that's frankly out of control, and instead try to paint a common enemy—that the rich person is bad. And if everyone agrees on that one concept that they're underpaying, perhaps they could get some more votes. Honestly, I just think this entire plan does not address the core issue at hand, which is the fact that government spending is out of control—it's incredibly wasteful, and this applies to both Democrats and Republicans. It’s both sides equally that are contributing to this!

Congress is able to tax as much as they want, and without the guardrails in place, they could keep taxing higher and higher and higher. But if they keep spending more than they get, there's never going to be a point where they'll have enough money. If we could just solve the excessive spending, that'd be great! But this is just political theater trying to make the other side look bad; both sides end up doing this to each other, and you as the American taxpayer are really just caught in the middle.

Unfortunately, so let me know what you guys think of this down below in the comments. Thank you so much for watching! If you enjoy videos like this, please let me know, hit the like button, and subscribe, because this took me forever to do. Thank you so much! I'm so tired, and until next time.