Major Tax Change Coming? What You Need to Know
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If you're a man of culture like me, you've probably seen the dramatic headlines about Kamala's proposed tax policy. Current VP and hopeful P, Kamala Harris, has proposed a tax on unrealized capital gains for the wealthiest Americans. And people are furious. Because you know what they say, don't mess with taxes. Or is it Texas? I can't, I always get them mixed up. They both claim to be the heartbeat of America. America runs on taxes. Don't you dare take the name of Texas in vain.

- Anywho, this would be a major change to the American tax system and could completely change investing in the economy as we know it. In today's video, we'll break down how this proposed wealth tax would work and how it could affect you even if you're not part of the uber rich. But before we jump in, hit those like and subscribe buttons and share this video with Bill Gates because he is not gonna like it. Now, if you know anything about this election season, it's been a weird one. Things are moving very fast. So this episode comes with one huge tiny caveat. By the time you watch this, the details of the candidates tax proposals

may have changed, and hopefully they will, 'cause I don't like 'em. But don't @ me if everything's changed two hours after we post this video. With that being said, in order to make sense of this proposed tax, we first need to understand what the heck capital gains is. And no, not talking about Chip's autobiography, although not a bad read. Capital gains are profits from investments like stock or real estate that go up in value after you buy them. And those gains can either be realized or unrealized.

Once you sell an investment for a profit, then you actually have the money. That's realized capital gains. But before you sell it, and it's just theoretical profit you could have, it is unrealized. And under current tax law, you only pay taxes on the profits you make from an investment after you sell it. In other words, you can only be taxed on money you actually made. Make

Makes sense. Logical decision, logically arrived at. As long as you hang on to your investment and don't sell, any unrealized capital gains remain out of Uncle Sam's pilfering little patriotic fingers. Here's an example. Let's say you buy a stock today that's worth a dollar. A year later, you look at your account, it's now worth $11.

So now you have $10 in unrealized capital gains. But if you decide to sell that stock for $11, now you have $10 worth of realized capital gains, and you would have to pay taxes on that $10 in profit. That makes sense. So why would anybody want to change that and tax unrealized capital gains? I don't know. Well, here's why. A lot of billionaires like Bezos, Zuckerberg, Elon, and Gates...

They grow their wealth primarily through their huge investment portfolios, which are not taxed until the gains are realized once they sell. Meanwhile, most of us normies out there, we grow our wealth mainly through our salaries and our wages, which are subject to federal income taxes and in some cases state income tax as well.

So basically, the current tax code allows some of the wealthiest Americans to pay lower tax rates on their income than a lot of middle-class households pay. So Biden, the current P, hopeful retiree, proposed a 25% minimum tax on the unrealized gains of people who own $100 million or more in assets.

And now Kamala has adopted this as part of her campaign. So what this is, is an attempt to increase tax revenue and make taxes more fair by taxing the richest of the rich. How much revenue exactly? Well, it's projected to raise as much as $503 billion over 10 years, which by the way, just a drop in the deficit bucket, considering America is in $35 trillion of debt.

So like 1%. And I get it. I don't want Zuck to be paying a lower tax rate than me. If anything, he should pay more because he's a shape-shifting lizard. That's the nicest thing I can say about him. I don't have a lot of good things to say about lizards. Offense taken! Offense taken.

But I won't bury the lead here. This is a terrible solution, and this has nothing to do with politics. Let me explain. According to an estimate by a wealth advisory firm, this tax would apply to only 9,850 people in the entire country. But when you play out what might happen if this tax were to become a reality, you start to see how it could affect more than just the uber wealthy, including you and me. Here's how it could negatively impact your finances.

Number one, there is the possibility that this could change over time and the tax would eventually apply to more people or even everyone in America. Don't believe me? Well, this is basically what happened with the income tax back in the day. Back in 1894, it applied to less than 1% of American households. And look at us now. Most of us are paying income tax. That's a bummer.

Of course, we can't predict the future, but it's not hard to imagine this expanding to affect more and more people over time. Number two, there's the possibility of negative ripple effects. Take, for example, the stock market. If wealthy investors have to pay a hefty tax bill on the money they never saw, well, they've got to find that money elsewhere to pay the bill, which means they might have to start selling off a bunch of stocks to pay the tax bill, which could lead to increased volatility in the stock market.

which means you're 401k doing this. And if the tax caused enough investors to shy away from stocks altogether, that could lead to a huge drop in stock prices, which would affect anyone with a retirement account or investment account. And this tax could also have a negative impact on the economy as a whole. See, a lot of businesses rely on money from investors to start up, expand and innovate. And if you make investing less attractive, you're probably going to get less of it, which could mean fewer new businesses, less innovation and fewer new jobs, which could affect you.

It could also affect the housing market, because just like stocks, real estate could also be subject to this tax. If it leads to less real estate investment, we could see lower demand and potentially lower home values. That lower demand could lead to fewer new builds, which could affect the construction industry. Plus, think about it. If super wealthy real estate investors take a big tax hit, they would likely try to pass that cost on to their tenants through higher rent prices. No thank you. So the ripple effects could end up hurting way more than just 9,850 people.

And while this is all hypothetical, it is a real possibility. Except the whole Zuckerberg's lizard thing. That's not hypothetical. That is straight-up-thetical. And I was human. I am human. Still. Now, I want to be clear. I'm not an economist. I'm just a boy standing in front of a bad tax policy asking it to...

Please don't. But as a personal finance guy, here's what I think. This plan might lead to short-term gains in tax revenue, but I think it would do some serious long-term damage to the economy. So should you be concerned? We'll get to that in a moment. But first, let me tell you about how Delete.me, one of our sponsors, can help you with something else that's concerning. You know all those weird, shady sites that sell your personal info for a profit?

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So help protect yourself from the risks of online scams and data breaches with Delete Me. And right now you can get 20% off by going to joindeleteme.com slash George or by clicking the link in the description. And before we get back to Tax Talk, let's talk about your savings. Whether you're stacking cash for a used car, a down payment on a house, a trip to Magnolia Silo so Chip can sign your copy of his memoir, your money should be working for you.

And for that, I recommend a high yield savings account like the one offered by Laurel Road, one of the sponsors of today's video. Right now, your account balance earns 4.8% APY. Plus, there's no minimum balance required to open an account, your deposits are FDIC insured, and there's no hidden fees. And if you want to talk to a real human being, Laurel Road has got those too. Their premium care team will take premium care of you. Learn more by going to laurelroad.com slash george or click the link in the description. Okay, back to the techs.

Whatever the intentions are behind it, I think it would be a terrible idea for the economy and the country as a whole. So should you be concerned? Probably not. Because no matter who the president is, this tax is not likely to happen. Let me tell you why. Number one, an unrealized capital gains tax would be a nightmare to enforce. Think about it. Thousands of taxpayers would need to evaluate all of their assets every single year. And you can't put a price tag on my Pog collection. I've got some heirloom holographic slammers that are PSA 10 grade. Don't mess with me.

And how in the world would the understaffed IRS be able to audit all of those filings? And what happens if you pay taxes on your assets and then those same assets lose value the next year? Do you get a refund from the government? How is that going to work? There's just too many issues to solve for this to ever practically work. Number two, it's not likely to have enough support in Congress. This isn't the first time we've seen some kind of wealth tax proposed, and they hit a brick wall every single time. And I don't think this one's going to be any different.

And number three, and most important, it might be unconstitutional, which is kind of a deal breaker if you're a law abiding president, which I know is asking a lot these days. - Oh no, he didn't. - You see the constitution makes it extremely tough for the government to impose what's known as a direct tax.

And a tax on unrealized capital gains could be considered a direct tax because it's a tax on the personal property of a select group of people. So even if Congress did pass this, you'd probably see lawsuits pop up faster than Zuckerberg's tail grows back when a kid snaps it off. And they're always snapping it off. I don't know why I got weird. Why is it a kid snapping it off?

And I'm not the only one who thinks this is a terrible idea. According to a 2021 study, the vast majority of Americans, about 75%, prefer for stock gains to be taxed when the stock is sold, not when the gains are unrealized. The other 25%, I'm not sure they understand how money works. Their cornbread ain't done in the middle.

as we say in the South. So don't get your taxes in a wad over this because it's probably not happening. Stop trying to make unrealized gains tax happen. A big reason it's been all over social media is because it's election season and people on both sides of the aisle want to make their candidate look good and the other candidate look bad.

That's how it works. But please don't get caught up in all the hypothetical fear mongering. If you do the right things with your money, you can build wealth no matter who's president or what tax bracket you're in. Just follow the Ramsey baby steps that I talk about on this channel because it is a proven plan that has worked for millions of people, including me. And if you're an overachiever like me, be sure to watch this video next to see how I built a $1 million net worth by the age of 32. And believe it or not, wasn't my impressive pod collection. Thanks for watching. We'll see you next time.