- [Narrator] Vice President Kamala Harris wants America's ultra-wealthy to pay more taxes. - Teachers and nurses and firefighters are paying a higher tax rate than billionaires and the biggest corporations. - But, but, - And I plan on making that fair. - [Narrator] Here's the thing. Top earners do pay higher income taxes than the middle class, but Democrats say that most of the increases in wealth currently don't get taxed, because they take the form of unrealized capital gains. - Those who have $100 million or more of assets have over $10 trillion of unrealized capital gains. - [Narrator] Harris's proposed barring much of President Biden's tax proposals. And she says she favors a tax increase on billionaires. But she also hasn't explicitly mentioned a tax on unrealized gains. The wealthiest Americans, including some of her supporters, are watching closely. - Some people think that there's going to be an unrealized gains tax on capital gains.

There is not. I'm gonna tell you if I'm wrong, she's gonna hate to hear this. I'll work so she doesn't get elected again. - [Narrator] In Biden's proposal, a new minimum income tax would be imposed on the wealthiest Americans, the top 0.01%. And unrealized capital gains would count as part of their income. - It is a novel proposal. We've not done something like this before. - [Narrator] Here's why the idea is so controversial. - We're going to explain unrealized capital gains, in part, using apples. Appletal gains, if you will. - [Narrator] Richard Rubin has been covering US tax policy for the Wall Street Journal for nine years. - [Richard] Imagine you've got an apple tree. That represents an asset, something you have. It's growing over time. Unrealized capital gains is the difference between what an asset costs you, and what it's worth now.

Under the current tax system, you're only taxed when you are chopping this tree down, or when all of the apples are going to market. Unrealized capital gains are not taxed. You can hang onto them as long as you live. And when you die, those gains escape the income tax entirely. - Suppose I bought Apple stock for $20 a share, and now the stock is worth $100 a share. I have $80 of unrealized capital gains, and I'm only taxed on those at the time I sell them. Stocks have exploded in value over the last 20 years. And the question then is, to what extent can those gains be shared throughout society as opposed to perpetuating dynastic wealth? - [Narrator] Being very wealthy has its perks. The world's richest man, Elon Musk, for example, can borrow against his assets to get loans with flexible repayment terms and low interest rates.

instead of selling his shareholdings and paying taxes. Last year, the Wall Street Journal reported that Elon Musk kept his financial stake in SpaceX for a $1 billion loan in the same month he acquired Twitter, later rebranded X. It's part of a strategy known as buy, borrow, die. And Musk is hardly the only one to utilize it. - They can borrow against the value of the tree. It's like drinking the juice out of the apples while the tree is still growing. - You know what the average tax rate those billionaires pay? - [Audience] No. - 8.2%. (audience booing) No, I'm serious! Anybody wanna trade that tax rate? - Biden has said that billionaires pay 8.2% of their income in taxes. And it's all really about unrealized capital gains. It's all really about how you measure income.

If you look at the IRS numbers, it says the top 0.001% pay about 23% of their income in taxes. The basic idea of taxing unrealized gains is that as the asset is growing, before it's even been harvested, the government would come in and take a bite. (apple crunching) The Biden administration proposal is to impose a minimum income tax on billionaires, or starting at a 100 million of net worth, of 25% of your income every year. And that income is measured by including unrealized gains. The initial payment on taxes of unrealized gains would happen over nine years. In subsequent years, you'd have five years to make payments, so they spread out the payments. - [Narrator] If the asset is sold, the ultimate tax would be higher under Harris's plan. She wants to raise the top capital gains tax rate to 33% for high-income households. The Treasury Department estimates

that Biden's billionaire minimum income tax would generate about $500 billion over 10 years. Wealthy investors and Republican nominee Donald Trump have vehemently rejected this kind of tax policy. - That's gonna cause massive selling of homes, of stocks, of companies, of art. - She wants to tax an unrealized gain. This woman is crazy. - There would be some economic effects of this in ways that are maybe not entirely predictable right now. It's those concentrated ownership situations, where it could become more of an issue about what that value of the company is if that primary shareholder starts to sell. - The problems grow for those fabulously wealthy who own a non-publicly traded enterprise, a closely held, or privately held enterprise. There, there's no ready market to sell some of those shares. The tax can be deferred until death, say, at which point, there's an interest charge,

(bell dinging) on the tax that should have been collected earlier. It will be pricey for the billionaires to pay this tax sooner or later, and they can't take it with them or give it to their heirs. - Another big challenge that comes up is assets that are hard to value. So if you've got your apple tree and you know what an apple sells for, you can pretty much figure out the value of the tree. That's not true if the apple tree is a Picasso. You would use the most recent available value. There would be some disputes with the IRS over exactly what those values would be. - [Narrator] If stocks go down, wealthy taxpayers could stop paying the taxes owed from prior years, and in some cases, the IRS would be on the hook for refunds. - If you get to a point where you would be owed a refund, and you sort of paid too much in, then yes, the government would, in some cases,

be providing refunds to billionaires. - [Narrator] The Journal reached out to the Harris campaign to clarify its stance on taxing unrealized gains. It did not respond to request for comment. - For a billionaire's tax to advance, the stars would need to align. Harris would need to win the presidency, and then Harris would need both a Democratic House and Senate. So it's a tough road to hoe to even get a majority of the Democrats, let alone a majority of each of these chambers. (gavel banging) - Congress taxes incomes under the 16th amendment to the Constitution. But that amendment doesn't really define what income is. There's a real legal question of whether unrealized gains are subject to the income tax under the Constitution. And you can guarantee that if Congress were to pass such a tax, it would be challenged very quickly. We don't know whether it would survive a Supreme Court challenge. There's real uncertainty, even if it were put in place about

whether it could survive that. (bright music)

The ‘Billionaire’ Minimum Tax: How Harris Could Tax America's Ultra-Rich | WSJ

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The ‘Billionaire’ Minimum Tax: How Harris Could Tax America's Ultra-Rich | WSJ

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