Harris wants a 28% capital gains tax rate. How it compares with history

As the election ramps up, many investors are focused on capital gains taxes and how proposals from both parties could affect their assets.  

Democratic presidential nominee Vice President Kamala Harris last week proposed a 28% tax on long-term capital gains, or profits from the sale of assets owned for more than one year, for those making more than $1 million annually. The plan would raise the top rate from 20%.

“I would go higher than that,” Sen. Bernie Sanders, I-Vt., on Sunday told NBC’s “Meet the Press” of Harris’ proposal. “I think she’s trying to be pragmatic and doing what she thinks is right in order to win the election.”

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Harris’ plan veers from President Joe Biden’s 2025 fiscal year budget, which calls for 39.6% long-term capital gains taxes for those earning above $1 million per year.

Her plan would also raise the net investment income tax, or NIIT, from 3.8% to 5%, The Wall Street Journal reported last week. Biden’s 2025 budget has the same NIIT increase for those with modified adjusted gross income, or MAGI, over $400,000.

Under current law, the NIIT applies to certain investment earnings once MAGI exceeds $200,000 for single filers or $250,000 for married couples filing together.

If Harris proposes raising the NIIT to 5%, the combined rate would be 33% for top earners. Biden’s plan would raise the combined rate to 44.6%.

The Harris campaign did not immediately respond to CNBC’s request for comment.

Meanwhile, former President Donald Trump broadly supports tax cuts but hasn’t outlined a capital gains tax proposal.

The issue was addressed in Project 2025, a “vision for a conservative administration” created by conservative think tank The Heritage Foundation with more than 100 other right-leaning organizations.

Project 2025 called for a 15% tax rate for capital gains and dividends. The collection of proposals would also abolish the NIIT.

Several Trump officials have been directly affiliated with Project 2025, but he has distanced himself from the plan.

The Trump campaign did not immediately respond to CNBC’s request for comment.

Of course, capital gains tax changes in either direction would require congressional approval, and control of the House and Senate is uncertain.

Here’s how the candidates’ proposals compare with past capital gains tax rates.

In recent decades, capital gains tax rates have generally been lower than “ordinary income” or regular income tax rates, according to the Tax Foundation.

After tax cuts from former President George W. Bush, the top capital gains tax rate dropped to 15% from 2003 through 2012. That rate was the lowest since the Great Depression, according to the Tax Policy Center.

However, capital gains revenue is more volatile than regular income tax collections because it’s influenced by when investors sell or “realize” profits, Watson said.   

“It creates a lot of uncertainty for policy wonks who are trying to generate revenue estimates for these proposals,” he added.  

To that point, the average effective tax rates, or percentage of taxes paid, have been lower than the maximum capital gains rates, according to the Tax Foundation.

Generally, investors can choose when to sell assets and incur capital gains taxes. Higher rates or lower future rates can prompt investors to defer sales, experts say. Alternatively, investors will strategically realize gains in the 0% bracket, depending on their current taxable income and long-term goals.