Americans Split on Taxing Unrealized Capital Gains [2024 Survey]

2024 is an election year, and both presidential candidates are on the campaign trail trying to connect with voters ahead of November's election. A number of topics are important to both candidates and voters in this election, with financial worries and issues being chief among them for many.

One financial issue that has been in the news recently, however, affects only a very small number of Americans: the richest ones.

Known as the Unrealized Capital Gains Tax, this policy shift, endorsed by Vice President Kamala Harris, creates a tax on unrealized capital gains (for qualifying individuals) for the first time ever. While the potential change is structured in a way that means that the vast majority of Americans would be completely unaffected by it, that doesn’t mean the average person can’t have an opinion on it.

To better understand how the electorate feels about this potential change, FinanceBuzz surveyed 1,000 U.S. adults to find out whether they support the proposed tax law update, as well as how they feel about an alternative proposal focusing on realized gains.

Key Findings

• Opinions are split when it comes to taxing unrealized gains, with 55% of people opposing the change and 45% in favor.
• Democrats are the only political persuasion where the majority are in favor of taxing unrealized gains, with 59% agreeing compared to 46% of independent voters and 30% of Republicans
• Regarding increasing tax rates on realized gains, the overall results are flipped as the majority of respondents, 55%, are in favor.
• 70% of Democrats and 55% of independents support taxes on realized gains, as do 2 out of 5 Republicans (40%).

What are unrealized capital gains?

Capital gains and how they are taxed can be tricky to understand.

Whenever someone buys an asset such as real estate, stocks, collectible items, etc. at one price and then sells it for a profit, that profit (otherwise known as a capital gain) is realized at the time of sale and is considered taxable income. The specific tax rate on that gain then depends on how long the seller owned the asset before selling it.

Still confused? Here’s an example:

• Say you buy a stock for $500.
• The stock market goes up, and a year later, the stock is worth $1,000, so you decide to sell it for a profit of $500.
• When you sell the stock, your capital gain (profit) is realized, meaning you’ve actually completed the sale and made your profit. You pay taxes on the $500 you profited.

But what if you don’t sell your stock? You have a $1,000 asset, but you only paid $500 for it. The gap (your potential profit) is known as an unrealized gain because you haven’t actually sold the stock yet. It isn’t taxed because you haven’t actually profited from it yet.

What would change under the new tax plan and who would be affected?

As mentioned, taxation only occurs after a sale is made and profit is earned (or realized), meaning that no matter how much the value of something increases, as long as it remains unsold the gained value qualifies as unrealized and cannot be taxed.

The proposal that VP Harris has indicated support for would change that, but only for households worth more than $100 million (the top 0.01% of Americans, or one out of every 10,000). If the change were to take place, tax laws for qualifying households would tax them at a minimum of 25% of their income and their unrealized capital gains.

Why apply it to only the ultra-wealthy? Because at this income level, it’s common to get paid in stocks or stock options, which they can leverage for cash or property through loans or investments secured by those stocks or options. This puts these households in a position where they can manage their finances without ever having to actually sell their assets, while remaining untaxed under the current system.

Feelings about taxing unrealized capital gains

While the potential tax change would only impact a very select group of Americans, it would be such a notable change in how taxes work that it has become a relatively big news item as the election approaches.

As a result, many people have formed an opinion about the idea, even if it won’t have any direct bearing on their own lives. With that in mind, we surveyed 1,000 U.S. adults to find out how people feel about the proposal in a general sense as well as finding out how political affiliation impacts how receptive someone is to the idea.

When asked their opinion about this potential tax change, feelings among survey respondents were split relatively evenly. While more than half of people opposed the idea, it is not by a very large margin, as 55% of people said they did not support the proposal, while 45% said they were in favor of it.

Respondents were also asked which political party they most closely identify with, allowing us to see how sentiment towards this idea differed based on political affiliation. Unaffiliated voters are most closely aligned with the overall sentiment, as 46% of people self-identifying as independents supported the proposal, while 54% opposed it. The majority of Democrats, 59%, favored taxing unrealized gains for the uber-wealthy, while only half as many Republican voters (30%) supported the idea.

Opinions on increasing the tax rate on realized gains

Implementing a tax on unrealized gains, even for an extremely small subset of citizens, would be a big change in U.S. tax law. Another, less drastic proposal that would only alter existing laws has also been floated recently — increasing the tax rate on realized gains by 8%, but only for people making more than $1 million annually.

Sentiment regarding this idea is flipped compared to the proposal to tax unrealized gains, as 55% of people favored higher taxation on realized gains for millionaires. This approval rate is 10 points higher than the other plan.

That 10-point boost is relatively consistent across political lines as well, as 70% of Democrats, 55% of independents, and 40% of Republicans were in favor of the increased tax rate while just 59% of Democrats, 46% of independents, and 30% of Republicans, respectively, support taxing unrealized gains.

Tax tips for everyone, regardless of their capital gains status

Whether these proposals ever turn into actual law, and regardless of whether those potential laws apply to you, just about everyone wants to save money on their taxes. Here are some tips to help this year.

• Understand everything you need to file. Taxes can be complicated, so brushing up ahead of time and making sure you understand how to file taxes can go a long way toward relieving stress during tax season.
• Utilize top tools to maximize results. Preparing your taxes yourself can be a daunting task, but thankfully there are a number of digital solutions available to help make things easier. Using one of the best tax software options on the market can turn a potentially overwhelming task into a relatively simple one.
• Use simple tricks to avoid capital gains taxes. There are certain ways to limit and avoid capital gains taxes, and taking some time to research top tips and tricks to do so can go a long way.

Methodology

FinanceBuzz surveyed 1,000 U.S. adults aged 18 or older using the Pollfish survey platform. Respondents were asked to self-identify the political party they most closely identify with, with 37% identifying as Democrats, 33% as Republicans, and 26% as independents. The remaining 4% claimed political leanings outside of those three designations.