Harris-backed unrealized gains tax would impose a 25% tax on assets over $100 million, but would have minimal impact on technology investors

Kamala Harris's tacit endorsement of a tax on unrealized capital gains has ignited debates across Silicon Valley. Concerns grew as online chatter misrepresented the proposal, suggesting it would affect many in the tech industry. In reality, this tax would impact only a small portion of the wealthiest individuals in America.

Unrealized gains tax targets not just tech entrepreneurs

This proposal, part of President Biden's budget plan, targets individuals with over $100 million in wealth who do not pay at least a 25% tax rate on their income, including unrealized gains.

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Even within this wealthy group, the tax would primarily affect those with highly liquid assets, leaving most startup founders and tech investors unaffected.

For those holding illiquid assets, such as private startup shares or real estate, a deferred tax of up to 10% on unrealized gains could be applied upon exit. The proposal thus spares most tech entrepreneurs, focusing instead on hedge fund managers and others with significant tradable assets.

Unrealized gains tax marks major change in U.S. tax policy

The proposal represents a major change in U.S. tax policy, as America traditionally does not tax unrealized gains, except in specific cases. The plan aims to address tax system inequities, where the ultra-wealthy often pay lower rates than the middle class.

Although this plan could raise $500 billion over ten years, Biden's administration emphasizes that the primary goal is to correct systemic inequities. The revenue would support Harris's "opportunity economy" initiatives, including child tax credits and housing subsidies.

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Unrealized gains tax could discourage startups

Critics worry about the potential impact on startup founders, fearing that such a tax could disincentivize taking companies public. There's also concern that lowering the $100 million threshold could become a future possibility, even though it's not currently proposed.

"This road leads to bread lines and ugly shoes," Tesla (TSLA) CEO Elon Musk posted on X (formerly Twitter) about Harris' economic agenda.

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