What Exactly Is Buffett Afraid Of?

Harris's campaign platform promises to impose a 25% unrealized capital gains tax on America's wealthy.

Historically, the US system has actually encouraged people to hold assets long-term. As Mencius said, "Those with stable property have steady minds; those without stable property lack steady minds." As long as you don't cash out, as long as you haven't realized your gains, you aren't taxed. Property taxes work the same way: Warren Buffett lives in his Omaha home, which he bought in 1958 for $31,500, and his property tax is based solely on that original purchase price.

What does Harris's model of taxing unrealized gains actually mean? It means that even if you haven't sold your stocks, you must annually settle your net worth based on current stock prices and property market values. The nominal appreciation—money you haven't actually pocketed—would still be subject to a 25% tax.

Taxes are paid in cash, not offset with assets. Take Buffett's stock holdings: if they appreciate by $10 billion, he'd owe $2.5 billion in cash taxes, even if he never sold a single share. That $10 billion is merely paper value. I ask you: without selling his stock, how does Buffett pay his tax bill? This isn't just Buffett's problem—it's the problem of all wealthy Americans. Under this proposal, all US rich people would need to pay up to 25% in cash for their unrealized capital gains.

Where does the cash come from? There's only one source: selling assets. America's wealthy would collectively dump stocks and real estate to raise the 25% tax levy. Since the vast majority of US wealth is concentrated in the hands of a tiny elite, if all rich people collectively sell assets to pay taxes, who buys? Can America's poor afford to absorb it? A mass sell-off with no buyers would cause a crash.

The direction of taxation hasn't been questioned.

The wealthy actually fall into two categories.

One type is heavy-asset, low-cash-flow: factory owners, for example. They hold vast amounts of physical assets. If taxed, they can't generate enough cash flow and would be forced to sell production lines and lay off workers, disrupting operations and causing social problems.

The other type is celebrities—light-asset, high-cash-flow. Big investors like Buffett hold substantial stock portfolios, while celebrities simply hold large cash reserves. Taxing the latter wouldn't disrupt the economy. Major investors and celebrities have plenty of cash flow; they wouldn't need to lay off workers because of taxes. Besides, their business models rarely involve many employees anyway.

China's struggles with property taxes and estate taxes stem from this exact issue: many wealthy Chinese are effectively factory owners. Once such taxes are imposed, they must sell assets in bulk to raise cash, triggering a chain reaction that leads to employment crises.