Harris’ campaign surrogate Ro Khanna urges VP not to support unrealized capital gains tax

Ro doesn’t stand a chance.

Progressive Party Rep. Ro Khanna (D-Calif.) on Wednesday warned Vice President Kamala Harris against implementing an unrealized capital gains tax, even though Harris has expressed support for President Biden’s fiscal 2025 budget proposal that would do just that.

“Let’s say you’re an entrepreneur, you start a company and it does $100 million or $200 million on paper. Now if you tax that, you’re probably going to force that person to sell it,” Khanna, whose Silicon Valley district is the richest in the U.S., told CNBC’s “Squawk Box.”

“Do you really want entrepreneurs to be forced to sell their companies to larger institutions and have their value go down? I don’t think that’s what the startup ecosystem wants,” added Khanna, who didn’t mention his California colleague by name.

For most capital assets, taxes are collected when they are sold, meaning wealthy individuals can accumulate more wealth as the asset increases in value over time.

Traditional income, on the other hand, is taxed by the government throughout the year.

This has led to a strategy known as “buy, borrow, die,” in which wealthy individuals borrow money against assets to cash in on unrealized capital gains without paying taxes.

Many progressives complain that the U.S. capital gains tax system allows the wealthy to avoid being held accountable to Uncle Sam.

Khanna said on Wednesday he “understands why” many of his party comrades are pushing for higher taxes from the rich, adding: “That is not the right way to go about it.

“Besides, 90, 95% of startup investments end in failure,” he added, “and that’s why it discourages investing in these startups.”

An alternative, according to Khanna, could be for the government to tax loans made to wealthy individuals to take advantage of the capital gains tax structure.

Hours after Khanna spoke, Harris called for a top tax rate on long-term capital gains of 28% for people earning at least $1 million a year. The current top tax rate on capital gains is 20%.

President Biden’s budget for fiscal year 2025 included a policy that would tax capital gains at a rate of up to 44.6% at the top, according to some analyses of the plan based on Biden’s push for a top rate of 39.6% along with a 5% tax on investment income.

“Billionaires and large corporations need to pay their fair share of taxes,” Harris said at a rally in New Hampshire on Wednesday. “It’s simply not right that those who can afford it often pay a lower tax rate than our teachers, nurses and firefighters.

“We will tax capital gains at a rate that rewards investment in American innovators, founders, and small businesses.”

Harris, 59, described her plan as a “minimum tax for billionaires,” after her campaign revealed support for expanding the business start-up expense deduction from $5,000 to $50,000.

“When the government encourages investment, it leads to broad-based economic growth,” she told supporters, “and creates jobs, which strengthens our economy.”