The state of the U.S. economy, all $26 trillion or so of it, will be one of the keys to determining whether Kamala Harris or Donald Trump wins the White House in November. Voters overwhelmingly say that it’s one of their top concerns, but when the economy is this large, the way politicians talk about it, as an issue, can change drastically over time. The last three years have been defined by inflation and high interest rates, and those are the primary concern for voters. It’s a stark turnaround from 2016, and even 2020, when Democrats made income inequality — especially the concentration of wealth among the wealthiest one percent — top concerns, as polarizing as it may have been for wealthy donors.
Amid that shift, Harris released a tax plan on Wednesday that signals that easing income inequality, at least as it is reinforced through the tax code, will not be one of her priorities. The Democratic nominee is backing away from President Joe Biden’s plan to hike capital-gains taxes on people who make more than $1 million a year to nearly 40 percent, she said during a campaign stop in New Hampshire. Instead, she plans to temper that increase to 28 percent. That number is a key political threshold. It’s the same rate that President Obama proposed (though, it applied to people with $500,000 in income), and the one that Ronald Reagan set back in 1986.
As far as tax hikes go, this is basically the dead center of the political middle ground. The policy is the centerpiece of a broader, business-friendly policy plan to spur 25 million new small businesses during a Harris administration. “We will tax capital gains at a rate that rewards investment in America’s innovators, founders, and small businesses,” she said in New Hampshire. Capital-gains taxes are lower than income taxes and apply to investments, making them so attractive for wealthy people whose net worth is largely tied up in stocks, bonds, and other assets. The current rate is 15 percent for most people, but can be as high as 20 percent for the wealthiest. For those who make over $1 million a year, Harris’s plan would change the all-in tax rate to 33 percent, according to the New York Times. (There’s also an additional 5 percent surtax on income below $1 million). That’s about ten percentage points higher than the Trump-era 23.8 percent, but 11 points lower than the proposed Biden plan.
Odds are, this won’t affect very many people. According to Credit Suisse, there are about 24.5 million people with $1 million or more in assets — like, say, a house. But only about 0.5 percent of households in the U.S. — roughly 635,000 out of 127 million — actually have annual income at that level. But that doesn’t mean its effects wouldn’t reverberate throughout the economy. In 2022, income inequality had actually decreased for the first time since 2007, according to the U.S. Census — thanks largely to the fall in incomes from the wealthy and the middle class during the pandemic. It would be wrong to say that a moderate hike in capital gains, rather than the near-doubling that Biden proposed, would make income inequality worse. But by looking back to the Obama and Reagan rate, it is, essentially, bringing back the status quo that exacerbated the problem in the first place.
