The Deduction

Election Insights | Taxes, Kamala Harris, and the DNC’s Vision

• Dan Carvajal

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 Dive into the highlights from the DNC as we break down Vice President Kamala Harris's tax proposals and their potential impact on everyday families. What do higher taxes on businesses and the wealthy mean for working Americans?
 
 Erica York, Senior Economist and Research Director, joins Kyle Hulehan to examine her VP pick, Tim Walz, and how his progressive tax policies have shaped Minnesota's economy. Plus, we’ll take a closer look at Harris's child tax credit expansion. 

 Links:

https://taxfoundation.org/research/all/federal/kamala-harris-tax-plan-2024/

https://taxfoundation.org/blog/tim-walz-tax-policies/

https://taxfoundation.org/research/federal-tax/2024-tax-plans/

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Kyle Hulehan:

Hello, and welcome to the Deduction, a Tax Foundation podcast. I'm your host, Kyle Houlihan, and today we're doing something a little different. I mean, not too different. We're still talking about taxes, after all. Uh, but we're, we're excited to launch a series of, of shorter episodes that we're going to focus on the election. Think of them as election minisodes. You know, our goal is to keep, you know, Our lovely audience you updated on everything that's happening right now And and don't worry our regular episodes are still going to be here and and we'll be diving deep into specific tax topics but riding shotgun with me on these election episodes is my co host erica york senior economist and research director here at the tax foundation You all know erica by now. She's a frequent guest and a true friend of the deduction erica. How are you doing today?

Erica York:

Hey, I'm doing good. Excited to dive into all things election related.

Kyle Hulehan:

So I want to get started We're we're going to try and have some segments here and try and just keep this very simple for people to understand We're just going to talk about what's in the news We're doing the what's in the news segment right now and you know, unless you've been living under a rock The dnc happened they had a laundry list of celebrities Really interesting cool performances lots of fun stuff And they did actually talk about policy sometimes that happened, too um so What are some of the standout features of kamala harris's tax proposals and and will they help everyday families?

Erica York:

So I would break her tax proposals into three different buckets. Bucket number one is higher taxes on businesses. Bucket number two is higher taxes on high wealth taxpayers. And then bucket number three, Is a whole bunch of different ways to increase spending through the tax code. So think lots of different tax credits for lots of different things. Some of the, the feature proposals that have been talked about in the news a lot since the DNC are her support of the tax proposals that were included in the Biden administration budget this year. So that's a big one. Bucket of proposals altogether that has about 5 trillion of tax increases in it. So we could go through a lot of those, but big picture, it's like a 28 percent corporate tax rate, lots of new, various smaller taxes on businesses. When it comes to individuals, the one that has been getting a lot of attention is the. The so called billionaire minimum tax. This is a tax that would bring unrealized capital gains into the income tax system. Right now you don't pay taxes on gains until you realize them. Like you sell an asset. Um, this would change that for people who have net wealth above 100 million. So it's not something that's. Directly targeted at everyday taxpayers. It's again targeted at high wealth individuals, but it takes the tax code in a direction that it's never really gone before by applying to this type of unrealized capital income. The big things in the news when it comes to the new types of spending proposals and subsidies in the tax code are a very juiced up child tax credit, up to 6, 000 for newborns, 3, 600 for young children, and 3, 000 for adults. for older Children. You'll recognize some of those amounts from the temporary pandemic child tax credit. But that 6, 000 idea is a new one, and it would be very expensive. And then she's also proposed a bunch of different subsidies for housing, whether it's first time homebuyers, housing development and construction. Lots of ideas on the housing front as well.

Kyle Hulehan:

When you say unrealized capital gains, uh, when you say that, that is like money that doesn't exist yet, that's It's trying to be taxed. Is that, does that make any sense?

Erica York:

It's money that exists on paper. So think of like if you buy a stock in a company, you, you have a share, you don't really have that money in your bank account. It's sitting there with the company. And as the company increases in value, so does the value of the stock that you own. But again, you haven't realized that you haven't actually gotten proceeds that you can go out and spend. It's just sitting there on paper. Um, you could also think of an example of if you own a business, that business is Is worth something like say it's worth, you know, 10, 000, 000. That doesn't mean you have 10, 000, 000 you can spend. It's just 10, 000, 000 that's tied up into the value of that ongoing business. This would bring values like that into the tax system. So even if you haven't cashed out your stock or sold your business, You would owe tax on the increase in the value of it, that value that only exists on paper. Um, now this, like I said, wouldn't apply to the vast majority of taxpayers. It's really targeted at a narrow group, but It's a fundamental change in how the tax system works. Unrealized capital gains haven't been part of the modern tax system that dates back to 1913. Um, you've always had to actually have income realized like real cash to pay tax on it. Um, this proposal would, would change that and say, no, we're going to tax you on the value of these assets. Um, every year, even if you haven't realized gains.

Kyle Hulehan:

That, that strikes me as very unusual and complicated and a little against what we like here at Tax Foundation, which is simple. I think when you're describing all of these things and listeners know at this point that I love to try to create a metaphor or analogy. I feel like a lot of what she's doing, like, if you have a garden, a lot of what Kamala Harris is proposing, like, is, you know, trying to plant stuff or do different things, but the soil's not the best. You're working with, with soil that's not so great and, and the foundation isn't so good. Does that, does that kind of track with what you're seeing?

Erica York:

That, plus an analogy that Daniel Bunn has used, in that she's not weeding the garden either. Planting all of these new, weird things with not a good foundation, without also taking out the weeds. Um, and in fact, you know, maybe we could categorize some of these tax policies as weeds. Um, because they are not productive.

Kyle Hulehan:

Yeah. And so we're going to transition here over to her, her VP pick, because we're trying to keep things short and sweet for our listeners. So what do we know about. Tim Walz, what could you tell us about him and his tax policy thoughts?

Erica York:

I'd say he mirrors a lot of the same concepts that we're seeing Harris throw her support behind. That's higher taxes on the wealthy, Higher taxes on businesses and more progressive redistribution through the tax code. Our state team has done a really good rundown of what policies he has signed into law, in his state. Particularly, um, post covid when we've seen many, many states move towards lowering their taxes. Um, governor Waltz has gone in the opposite direction and raised taxes except for areas where he's boosted benefits like the, the child tax credit, for instance. Um, so a lot of these same concepts that we're seeing Harris, um, want to pursue on the national stage have been pursued in, in, at the state level under Governor Walls.

Kyle Hulehan:

Yeah, one thing I, this is really silly and Dan, you honestly might cut this, but as you were talking right there, I was thinking about the like Drake meme, like nah, like all of the governors are going for tax reform and Governor Walz is like, Oh, I don't want that. And he's like, Oh, progressivity, raise taxes. He was getting the thumbs up. That's kind of just popped in my brain. But I think like when you think about it in that, in that way, he's kind of going against the grain and some of what they're doing is, is going against it. You know, what we here at the Tax Foundation would think of as simple, transparent, or good tax policy.

Erica York:

Yeah, it's very much in the opposite direction of the principles of tax policy that we espouse, which are essentially make the tax code simple, neutral, and as much out of the way as taxpayers to pursue their work and saving and investment opportunities as they can. And instead, it's a vision of the tax code that says, we're going to punish activity here. We're going to make it harder to invest, harder to work, harder to save. And we're going to use that revenue to redistribute it. Redistribute it in areas where we want to see more activity. Um, it's, it's similar to the policies we've seen enacted under the Biden administration, like a huge expansion of tax credits for certain types of investment in green energy, um, paired with higher taxes on businesses elsewhere. Um, so it really inserts the tax code more and more into different areas. Day to day life of individuals and of businesses as they're deciding where to work and invest Rather than getting out of the way and letting the market work

Kyle Hulehan:

So then, are there any other big picture takeaways from the DNC in general?

Erica York:

two things that stood out to me One is that harris is using the language of tax cuts but she's really talking about policies that are spending through the tax code the biggest example of this is When in her speech at the dnc, she said she would expand the child tax credit to cut taxes for You know a hundred million dollars Um, middle income households when really what she's talking about is not reducing how much taxes they owe, but increasing how many benefits that they get on net from the government, particularly with things like refundable child tax credits. Um, the other thing that stood out was the Harris and others, um, repeatedly criticized candidate Trump for his tariff proposals. And I would say rightly so. So, um, they're, they're pointing out that he has proposed a 10 percent universal tariff. He's also proposed increasing tariffs on China. And of course, at the end of the day, it's the American consumer who bears the brunt of that burden. Um, and so Harris and others have equated it to something like a national sales tax. Um, it's not a sales tax, but it has a similar economic impact. And so their criticisms have pointed out, um, how. Many middle income taxpayers could be worse off under the combination of tax and tariff proposals that Trump is running on.

Kyle Hulehan:

Yeah, erica, we just simply couldn't have you on the show without you talking about tariffs. You're you're a real expert on tariffs You know what you're talking about. We have wonderful episodes with you. You guys should go check those out So as we wrap up this episode, I I want to let our listeners know What we're planning on doing next in our next episode We're gonna try and discuss donald trump's plan and we're gonna keep this flexible If there are any other big news items, we'll cover them as well And before we sign off I want to let you guys know that we're starting a question segment in future episodes. So if you have any burning questions on taxes and the election, and as we, you know, discuss all of this in the coming weeks, please just let us know. You can email us at podcast at tax foundation dot org, or you can find us on Twitter at At deduction podcast, uh, we will be continuing to do this and, and we hope to see your questions and, and in the future we can, uh, get this going. And erica, thank you for being on the show today

Erica York:

Thanks, Kyle.

Kyle Hulehan:

and thanks for listening guys. We will see you on the next episode.