44.6% Capital Gains and 25% on Unrealized Gains

No Clue on Finance

Today, Harris announced she backed raising taxes on both capital gains and unrealized gains. She previously was on board with an increase in the corporate tax rate to 28%, and eliminating the capital gains treatment for carried interest in all funds.

Clearly, she doesn’t understand finance and if she did, Fair Tax would be her proposal. We already knew her running mate had no clue on finance. Her proposed Treasury Secretary also doesn’t like free-market finance. Gary Gensler was responsible for the crypto implosion and bank runs a year ago due to his crackdown on crypto. Silicon Valley Bank investors should be very wary of him.

On the opposite side of the hemisphere, Argentinian President Mileil is eliminating taxes like crazy. Eliminated the VAT and Tax on Profit of Business Withholdings yesterday. Should we brush up on our Spanish?

If you are a financial advisor, and you are not advising your clients that this would be a disaster for them, even if they aren’t inside the tax brackets, you are committing malfeasance in your practice. Everyone knows that these things creep lower.

Remember the 40,000 IRS agents that were going to get the wealthy to pay their fair share? They went after tip workers instead.

I am going to share some math.

Prior to being a startup investor I traded my own money on the floor of CME. I owned my own membership which I bought for $580,000 in 1992. In 1994, that same membership was worth just over $1MM. Kamala would have taxed me on the gain even though I never sold the membership. 44.6% on $420,000 or $187,320. In 1998, that same membership fell to a value of $280,000. What then? Do I receive my first tax back? Not in the Kamala plan. Suck it.

I did seed stage investing from 2007-2021. I was relatively active. My typical first checks into a company were $20k to $25k. I usually would follow on in the next round. I invested into the seven figures over that time.

Some of these startups work out. Some don’t. Some take years to exit. Some don’t. There is no straight line when it comes to investing in startups. If you hit, you can hit big, 20x or better. A good angel investor will see gains of 1x-4x on 50% of their portfolio. They will see 0x on 48% of their portfolio. That means they need 27x on that last investment to return 3x on the entire portfolio. You can see how risky it is.

I was the first check into a company called Designed Events, which later became “Kapow”. I wrote a $25,000 check out of a $500,000 seed round at a valuation of $6MM.

Hence, I owned roughly .004% of the company. With no control and no information rights, I might add.

A few years later, the company signed a term sheet for $500MM. That financing fell through, but they did sign another term sheet for $150MM. I now owned a little less than .004% of a $150MM company, but for argument’s sake let’s assume I didn’t get diluted and still owned .004%. That means my $25,000 would be worth $600,000. A gain of $575,000.

Kamala Harris wants to tax me 25% on that gain, or $143,750. Of course, I didn’t actually cash in and realize it. It’s a paper profit. The company was doing well enough at the time to raise another round of capital.

A couple of years later, the company sold for right around $20MM. I got nothing back on the sale of the company and had a tax loss of $25,000. Under Kamala’s tax regime, I’d still take that tax loss.

But, ask yourself a question. If you are going to be taxed on unrealized gains, why would you invest money at all? Why would you assume the risk?

If you have money invested, are an active investor, are a pensioner, have a pension, or have a business there is no way you can seriously consider a vote for Harris.

Virtually every investment fund would go out of business overnight. Wall Street would crash as everyone sells everything they can to recognize the current cap gains rate before the increase. Financing would halt. Pensions would crater.

You might think, I don’t qualify. Tax the rich. What happens when you sell your home for a big profit? Sell the family farm? Sell the private business you built all these years?

It’s not that they don’t have a clue about finance. It’s that they believe they have a claim on your labor. They have a claim on your knowledge and productivity. They have a claim on your ingenuity and problem-solving ability. They think they own you. You didn’t build that and it’s not your money.

Nope, you are a slave in their eyes.

(Also remember you can no longer deduct state taxes against federal taxes)