The Harris Tax Plan: Will it affect overseas investments?
Contents
- Harris Tax Plan Proposals
- The Problem with the Harris Tax Plan
- Higher Corporate Tax Will Drive Inflation
- Changes to Capital Gains Tax Could Cause a Recession
- A Wealth Tax will Chase Wealthy Investors Away
- Estate Tax changes would hurt small business owners and farmers
- Taxes on unrealized gains
- How will the Harris Tax Plan Affect Overseas Americans and International Investors?
- Changes in Legal Tax Options
- What's the good news of a Harris tax plan?
- What does this mean for you?
The Kamala Harris tax plan has received a lot of attention recently. After all, taxes tend to go up more often during Democratic administrations than Republican ones. That includes the Biden administration.
Based on the proposals the Harris / Walz team has made, they would continue that trend.
In this article, we’ll look at the so-called Kamala Harris tax plan. We’ll look at the potential effects of her proposals. And we’ll review how they might affect wealth held domestically and internationally.
Harris Tax Plan Proposals
Here are some of the key tax plan proposals so far that would affect US clients with both domestic and international assets:
Corporate Tax Increases
A Harris-Walz administration would work to raise the corporate tax rate from 21% to 28%.
Capital Gains Tax
Harris wants to bring in higher taxes on capital gains for individuals earning over $1 million annually and aims to treat capital gains for those taxpayers as ordinary income. (That’s a big change.)
Wealth Tax
Estate Tax
They want to reduce the estate tax exemption. If you were to pass this year (2024), the amount you can give to your heirs before estate tax kicks in is $13.61 million ($27.22 million for married couples). The Harris-Walz ticket wants to reduce this, possibly to as low as $5 million.
Unlike other tax programs, they don’t have to ask Congress for this change. Without further congressional action, the estate tax threshold will revert in 2026 to $5.49 million, adjusted for inflation between 2018 and 2025.
If inflation remains in the 2%-3% range in 2024 and 2025, we expect the estate tax threshold will revert to approximately $7 million in 2026, or $14 million for a married couple (assuming they are US citizens.)
They also want to raise the tax rate on any amount not exempted. It’s currently 40%. But they would raise that to as much as 45% on larger estates. Maybe even more.
They also want to close certain estate planning loopholes. That includes certain trust arrangements, valuation discounts, and something called the “stepped-up basis” rule.
"Stepped-up basis": Amazing estate planning
The Harris tax plan specifically takes aim at a little known but highly useful estate planning rule called the stepped-up basis. In a nutshell, it lets someone pass on an appreciated asset tax-free to their heirs. It does so by resetting or “stepping up” the cost basis on an inherited asset to its fair market value as of the date of death of the person passing it on.
That might sound complicated, so here’s a simple example.
Let’s say dad bought a house for $100,000 in 1970. He dies in 2024 still owning the house. Except now it’s worth $500,000. If he had sold it before he died, he would have paid taxes on that $400,000 gain. But he didn’t and it passes to his son.
All else being equal, it enters son’s estate with no tax bill but with one major adjustment for tax purposes — on becoming the son’s asset, the cost basis is stepped up to $500,000. That $400,000 capital gain built up by dad is never taxed, even if son were to sell tomorrow. He will only pay capital gains tax on the difference between the sale price and the $500,000 it was worth when his dad left it to him.
Taxes on unrealized gains
Kamala Harris is also a fan of taxing unrealized gains — taxing the increase in value of assets before they are sold. Although it would (initially) only affect very rich families, it’s a big change in how taxes would work.
The Kamala Harris Golf Tax
You may have heard about Kamala Harris’ “golf tax” proposal.
Specifically, the claim that Harris intended to introduce a 20% sales tax on golf-related purchases, such as rounds of golf or golf clubs.
It turned out to be a joke, originally from a satirical post on social media. But the rumor quickly spread, leading to widespread confusion.
Now, although that may sound silly, the fact that a lot of people believed it points to something darker; people with assets are very concerned about what a new Democratic president might just do. And those policies aren’t anything silly at all.
The Problem with the Harris Tax Plan
In theory, we don’t have a problem with the goals of their platform. We just profoundly disagree with how the Harris team plans to achieve them.
Policies as pushed by a Harris tax plan will just make things worse. They will drive inflation, increase debt, possibly trigger a recession and make America less competitive against other countries.
Let’s address just a few of the specifics:
Higher Corporate Tax Will Drive Inflation
The corporate income tax is a double tax on the same income. Corporations first pay tax on their earnings – currently 21%. Shareholders in corporations then pay a second tax when corporate profits are distributed as dividends.
The fact is that workers bear most of the brunt of corporate taxes through lower wages. In addition, corporations adapt to higher taxes, usually in one or a mix of the following ways:
- They pass the extra cost onto the consumer, fueling inflation.
- They scale back investment, which makes a firm less productive over time.
- They will quit the US market and move overseas.
- They will pull back operating costs including the hiring of new employees.
None of these things are good for the economy. They may drive inflation or trigger a recession.
Changes to Capital Gains Tax Could Cause a Recession
If capital gains were to be taxed more heavily, there would be much less of an incentive for investors to take risks. They might decide to pull back or even out of the stock market. This is especially true for hedge funds and other institutional investors, which have built up multi-billion-dollar unrealized gains. A stock market crash could lead to a crash in consumer sentiment and drive us right into a recession.
Indeed, Canada just made some tax changes that increased the bill on capital gains. We’re now seeing the effect. In a case involving one of our clients, the owner of a Canadian company has deferred selling his business in order to avoid the tax. (He hopes a change in government due next year will reverse it.)
A Wealth Tax will Chase Wealthy Investors Away
First off, a wealth tax is hard to administer. To do it would mean a whole new administration within the government tasked with finding hidden assets. Those employees would have to be highly skilled and paid enough to compete with the private sector. So it won’t be cheap.
Not only that, but a wealth tax would likely trigger a great deal of capital flight meaning a lot less revenue for the government than they hope. That’s exactly what’s happened when other countries introduced a wealth tax.
For instance, France had a wealth tax in effect for 35 years. During this time, more than 10,000 wealthy French citizens left the country, taking more than $175 billion in assets with them.
And France lost more than 400,000 jobs.
In response to this policy failure, France modified its wealth tax in 2018 so that it applies only to real property, not to financial assets.
The only people who would benefit from a wealth tax would be accountants and lawyers. They would benefit from all the tax planning work that would come their way; the Treasury department not so much.
Estate Tax changes would hurt small business owners and farmers
With proper planning, even the wealthiest people don’t have to pay estate tax. But proposed changes would hurt the people wealthy enough to have to pay the tax but not sophisticated enough to use the relatively complex tax planning options to avoid it.
And although the estate tax exemption is still fairly high ($13.61 million for an individual in 2024), a reduction to $7 million or less could hurt the people a new Democratic administration say they want to help — successful middle-class families who have worked hard to build a small business or farm.
Taxes on unrealized gains
This is possibly the most dangerous proposal out there. It would upend the way taxes work and set a dangerous precedent for the future.
In short, instead of paying taxes when you sold an investment, you’d have to pay tax as an investment went up. So even if you didn’t sell it, you’d have to come up with cash to cover a tax as if you did.
Exactly how this would work is up for debate. It’s clearly unworkable in its current state. If such a thing ever did come to pass, it would be subject to legal challenges. It’s (currently) only meant to affect the wealthiest 11,000 Americans. And it might be nothing more than bluster that caters to their base.
But the fact that the idea is given so much thought at the highest levels is very concerning. And the fact that Kamala Harris is on board with the idea makes it something to think about if she wins the election. After all, once the principle of taxing unrealized gains becomes law, the threshold at which it takes effect can always be dialed down.
How will the Harris Tax Plan Affect Overseas Americans and International Investors?
Long-time readers will know that a big part of our practice is helping US clients internationalize themselves. In some cases, by investing overseas. In other cases, by helping them secure a second residency or second citizenship (and the passport that comes with it).
So let’s take a moment to look at how the Harris / Walz ticket might affect international planning.
An Expansion of FATCA?
The Foreign Account and Tax Compliance Act, or FATCA, is a draconian law designed to force banks and other financial firms to act as unpaid tax enforcers for the IRS. It was originally brought in under the Obama administration.
Over the years, we’ve railed against this law. But could it be made worse?
Kamala Harris, both as a Senator and in her previous roles, has been a fan of stronger tax law enforcement — especially against high-income earners and large corporations.
But could it make FATCA worse? We think not for the simple reason that FATCA is already pretty darn expansive.
Instead, we expect to see more funding for the IRS to enforce FATCA.
Now, we’ve always been very clear that no one should be trying to hide money offshore. It’s almost impossible to do nowadays, it opens you to blackmail if you somehow manage it in the first place, and if the IRS comes a-knocking, the penalties can be severe.
If you’re compliant, you shouldn’t be affected. If you’re not, it’s time to come in from the cold.
International Capital Controls on the Horizon?
To our clients, capital controls are a scary idea. It’s one of the main reasons they look at getting some of their money offshore and beyond the reach of the US system.
That said, it would be a big problem. Any capital controls would be a massive shock to the global economic system. It would undermine the dollars status as a reserve currency (a huge advantage to Americans). And it would open the door to years (if not decades) of legal challenges.
But there is one way to keep the money within US borders. It’s not technically a capital control but it acts like one and involves making the rules, regulations, and compliance such a headache that most Americans just won’t do it.
Unfortunately, that isn’t enough for plenty of Americans to look offshore for a better answer. (It also helps that there are quite a few professionals now available to help US clients with compliance.)
But if the Democrats believe that people shouldn’t be able to avoid their “fair share” (whatever that means), it would be logical to assume they would also want to keep all the money where they can see it.
How this will play out in practice is anyone’s guess. But we don’t believe we’re going to see capital controls in the traditional way anytime soon — at least not in a systemic sense.
What we do expect is:
A continuation of the “capital control by paperwork” trend.
Using existing laws to subject specific targets to capital controls.
Changes in Legal Tax Options
It’s no secret that the US has one of the most complicated, if not the most complicated tax code in the world. This makes planning complicated but also introduces quite a few tax opportunities.
That includes retirement accounts, insurance, certain types of income earned abroad, and more.
A Harris tax plan might try to limit these tax deferral opportunities, especially ones that benefit “the rich.”
In practice, beyond what’s been mentioned above, we don’t see a whole lot of change here. Many of the strategies used have a lot of political support behind them. Losing such programs will trigger a huge backlash that the politicians would have to pay attention to.
What's the good news of a Harris tax plan?
Well, in simplest terms, it’s only a proposal. Tax changes need to get through both the House and the Senate. No changes will happen unless the Democrats win the House, the Senate, and the White House.
There’s a good chance that, if Harris wins in November, her tax proposals will need to adjust to a new reality. Some will get watered down. Others will get scrapped. Lobbyists might even carve out a few new opportunities.
What does this mean for you?
Election years are generally very busy for our practice because there’s so much uncertainty. Uncertainty is bad for wealth protection.
Here’s what we’re recommending to our clients right now.
#1: Review your existing plan and look for weaknesses
A new administration — whether led by Trump or Harris — is going to change things. Work with a qualified advisor who can help spot the weak points in your current planning and help you come up with something more resilient.
#2: Make full use of tax opportunities while they exist
Very few tax changes are applied retroactively. They’re usually introduced on a going forward basis. So if you’re concerned about the prospect of a Harris government with higher taxes, start putting your new plan together now.
#3: Consider investing internationally.
It doesn’t have to be for much. You can dip your toe into foreign banking for as little as a few thousand dollars. You can move some precious metals overseas for a few hundred. Or you could buy a small property outside the US.
We’re here to help, of course. That’s what we’ve done since 1984 for thousands of customers and clients. To see how we can help you, feel free to book a no-obligation call with one of our Associates. You can do that here.
About The Author
Need Help?
We have 40+ years experience helping Americans move, live and invest internationally…
Need Help?
We have 40+ years experience helping Americans move, live and invest internationally…
As Featured on
