Vice President Kamala Harris stirred up the hornet’s nest by hinting at a potential tax on unrealized capital gains and hedge-fund manager Bill Ackman on Wednesday joined the debate with his view on the same.
What Happened: Ackman was responding to independent journalist Lee Fang’s point on people in the $10 billion+ range of wealth skirting tax payment. While acknowledging that there were problems with the tax on unrealized gains proposal, Fang said, “The people in the $10 billion+ range of wealth pay nearly zero income taxes, borrow till death, then heirs get a cost basis reset to pay zero capital gains,” he said.
The substack author clarified that he was not referring to the top 1% who pay a lot of income taxes but about the top 500 billionaires in America, the top 0,0001%. He noted that the Walton family tied to retail giant Walmart set a precedence by defeating the Internal Revenue Service in tax court and since then many have used Grantor Retained Annuity Trusts and other schemes.
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Ackman, the founder of Pershing Square Holdings, said the way to fix the problem is to make borrowing an amount in excess of one’s basis in a stock taxable. Explaining further, he noted that if one possesses $10 billion in stock in a company he founded with zero basis, loans secured by the stock should be taxable as if a like amount of stock was sold. “If you borrowed $1 billion you would have a capital gain of $1 billion,” he said.
“This would be both fair and practical to implement,” he added.
Ackman said for this a step up in basis equal to the loan amount should be done.
Why It’s Important: Democratic presidential candidate Harris hinted at the party’s national convention earlier this week that she supported an annual 25% minimum tax on the unrealized gains of individuals with income and assets that exceed $100 million.
Wall Street analysts and strategists cried foul over the proposal, with Fund Strat Head of Research Tom Lee, calling it a ” very unstable tax policy,” which would penalize those investing with a long-term perspective. New Street Research's Pierre Ferragu called it a “dumb” proposal.
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