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The tax man will take every last thing from you, at least the taxidermist leaves the outer layer for people to admire. Mark Twain

We are in the middle of one of the strangest campaigns in history.  One candidate can’t resist getting in front of a journalist, and the other refuses to do so.

Kamala Harris is trying to create an image through advertising that she is the “joyful” or “optimistic” candidate.  Her team feels that she can be made likable, even if the public does not know her position on matters of public policy.

However, she has made one policy very clear: She is for raising taxes. Below is a quick summary of her proposals and the probable consequences.

She joyfully wants to raise the corporate tax rate from 21% to 28%. Most economists believe that corporations will pass on the increased costs to customers. Taxes are a cost of doing business, like other costs. However, if stiff competition does not allow the price increase, then corporate profits and earnings will fall, putting downward pressure on stock prices.  The money must come from somewhere, out of profits, research and development, or employee compensation.

She joyfully wants to quadruple the tax on stock buybacks. A corporation buys back its stock if it cannot find a good use for the money or desires to enhance its value.  Higher stock prices can reward management and shareholders like your 401K. Stock buybacks can be strategic in nature and influence market sentiment. In some cases, stock buybacks substitute for dividends distributed to shareholders, allowing shareholders more favorable tax treatment.  They also can be strategic in nature.  For example,  during a financial crisis, an announcement of stock buybacks signals to the marketplace that management thinks its stock price is too low and signals confidence to other shareholders. Stock buybacks have been a big reason we have had ebullient markets over the past decade.  For example, in 2022, just S&P companies alone bought back almost a trillion dollars worth of stock.  Flows from 401ks were about half that at $500 billion.  In short, stock buybacks have been a significant support for stock prices.  Quadruple the tax on buybacks, and you cut demand for equities and put downward pressure on their prices.

She joyfully wants to increase the global minimum tax by 30%. In brief, the global minimum tax was designed to create a level playing field so companies would not move their operations and headquarters to lower-tax nations.  It was a way high-tax nations could punish lower-tax nations for offering a more friendly tax environment.  As such, it is just another cost for the corporation that then passes the cost on to you, the consumer.

She joyfully wants to increase the top income tax from 37% to 39.5%.  Democrats like to sell this on the idea that it applies only to “the rich.”  Besides the fact that the rich employ other people and buy a lot of stuff, almost all of us, at some point, might be rich, if only for a year.  This occurs when one sells a business or a farm.  Almost all of us want to be wealthier than we presently are, and Kamala wants to be there to get her cut if you succeed.  This is not a great incentive.

She joyfully wants to raise the corporate alternative minimum tax from 15% to 21%. This tax targets highly profitable corporations that use loopholes, deductions, and credits to reduce their federal tax liabilities. The idea is to ensure that all corporations pay taxes. Again, most economists don’t think corporations actually pay taxes. It is just a pass-through charge to you, the consumer.  However, it plays well with those with envy. See, laughing Kamala is really sticking it to those corporations!  Yes, but that means higher costs passed through to customers, lower corporate earnings, lower corporate employment, or lower stock prices.  In this sense, you either pay upfront in increased costs, or your retirement’s value decreases as stock values decline.  Corporations, one way or another, pass on the costs or contract some area of their operations.

She wants to joyfully increase the capital gains tax from 24% to 43.5%. Again, this could be quite punishing if you are selling a farm, a business, or even individual stocks.  These gains are often enhanced by the government inflating the money. Many people own houses or farms that they bought for just a third of what they are today.  It is the same house. It is the same farm.  It just takes more pieces of depreciated money to buy the same housing.  Inflation can push you into a higher tax bracket. So, the government gets to take an even greater percentage share of your wealth through inflationary policies and rising taxes.

As of 2021, data from the Federal Reserve shows that the wealthiest 10% of Americans own roughly 89% of all U.S. stocks. This includes direct ownership of stocks as well as holdings through mutual funds, retirement accounts, and other investment vehicles. The concentration of stock ownership has grown over the years, reflecting the increasing wealth inequality in the U.S.  This has primarily been caused by asset inflation being greater than consumer price inflation.  Those who own assets have benefited. Wealthy people will not stand still like sheep to be shorn.  Even if a rich person is an ignorant rap artist, they have intelligent advisors who will anticipate the passage of such confiscatory legislation.  Since stock ownership is highly concentrated, when wealthy people start to act in anticipation, they will fall over each other to take their profits at the lower current tax rate.   This has the potential to crash the stock market and your retirement plans.

Kamala joyfully wants to tax unrealized gains at 25%. This is the first time such a hair-brained tax has been proposed, and there is considerable confusion about how it will actually work.

An unrealized gain is like buying a stock at $10, and it is currently valued at $15. Yes, there is a “gain” there, but that gain could disappear tomorrow or next week.  What is the date upon which all the unrealized gains will be calculated?  Will this occur every year at the same time?  If you knew the date, you might decide to sell before you have a gain or if the gain is small.  But how would you know since markets fluctuate all the time?  In addition, can you get money back from the government if you have an unrealized loss?  None of this is apparent in her proposal.

Moreover, who wants to take the risks of fluctuating markets if, upon success, you are taxed 25% on the UNREALIZED GAIN and then have to pay a tax on the REALIZED GAIN?  Suppose I buy a stock at $10 and is presently $15.  I have an unrealized gain of $5 with a tax of 25%.  I pay $1.25 a share.  Suppose I have to sell some of the stock to pay the taxes.  I might pay another $2.17 long-term capital gain. That’s a $3.42 tax on the gain of $5 or over 68% of the “profit” taken by the government.  Was it their money?  Did they do the research and take the risk?  But if you succeed, they walk off with the bulk of the profit?  Such a deal for Kamala!

Mind you, if I bought the stock at $10 and it was $15, I would have made a 50% gain, which is exceptional. But after both taxes, there is not much left. I might conclude that investing in companies and helping to build America is not worth the risk because if I am a success, I will lose most of it to the government, but if I lose, they won’t share in the loss. It is a head-s-I-lose, tails-I-lose proposition.

What if you do what you are supposed to do and hold stocks for the long term? Let’s say ten years is the holding period. You pay unrealized taxes of 25% each and every year for ten years on an annually recurring basis. How much of your “gain” will be left?  And when you finally sell, you would then pay tax on the realized gain?  Between the two taxes, it would essentially destroy any reason to be a long-term holder.

Finally, joyful Kamal wants to double the number of Americans subject to the death tax. The “death tax” is a colloquial term used to refer to either the estate tax or the inheritance tax—two forms of taxes imposed on the transfer of wealth after a person dies. So get this:  after paying taxes on the income you saved to invest, and then taxed each year on unrealized gains, taxed on the dividends, and then taxed again when the stock or property is sold, you get taxed once more at the end when you try to transfer what is left of your estate to your family.  Estate taxes can run up to as high as 40%.

This can be especially punishing when passing on a family business or farm.

One final thought.  These tax proposals are being floated at a particular time and circumstance for the stock market.  Stocks have been rising for many years and have reached valuation levels that approach the highest in history.  Stocks are supported by a lot of borrowed money.  This includes not just margin loans but also loans backed by stock portfolios or so-called SBLs-security-based loans.  Hence, we have a stock market that is overvalued and over-leveraged (all the loans), and performance has been exaggerated by a narrow sliver of leading tech companies.

Overvalued and over-leveraged markets are vulnerable to external shocks. Novel and higher taxes create uncertainty and breed anticipatory action by existing holders.

We know that over 90% of the equities are owned by only about 10% of the population.  This 10% of wealthy investors are the target of all these “joyful” changes in the tax code.  These rich people are not stupid.  They will act to preserve their wealth. The trouble is, because ownership is concentrated,  they cannot all get out at the same time to avoid this joyful confiscation.

And stifle your envy.  When policies create a hostile environment for the rich to invest in, that means fewer employment opportunities for those not so rich.  Policies discouraging stock ownership may hurt the rich but wrecking your 401K.  Envy has a good record of backfiring on those who practice it.

Donald Trump has said her tax plan will crash the stock market. This is one of the rare occasions when campaign hyperbole is pretty much spot on.

Some suggest Kamala is just using political rhetoric to shore up her base and that such dangerous taxes would never pass Congress. The problem is that Elizabeth Warren and Bernie Sanders have previously floated these proposals. This kind of anti-capitalistic thinking is deeply embedded in today’s radical Democrat Party.  Think of that as you vote for House and Senate candidates.

Given the highly concentrated nature of stock holdings, their current overvaluation, and the excessive leverage present in the markets, these proposals may be joyful for Kamala, but the consequences will hardly be joyful for the rest of us.

And on a lighter note: