Billionaire hedge fund manager John Paulson, a prominent supporter of former President Trump, recently made headlines with his remarks on Fox Business, where he expressed deep concerns about the potential impact of Kamala Harris' tax policies should she win the presidency. Speaking on "The Claman Countdown," Paulson stated that he would move his portfolio into cash and gold, anticipating market volatility and losses due to Harris’ proposed financial strategies.
Paulson is particularly wary of Harris' rumored plan to impose a 25% tax on unrealized gains for individuals with net worths exceeding $100 million. He believes such a policy would lead to widespread asset liquidations, spanning from equities to real estate and luxury assets like art. "If they do implement a 25% tax on unrealized gains, that would cause mass selling of almost everything: stocks, bonds, homes, art," Paulson warned. "I think it would result in a crash in the markets and an immediate, pretty quick recession."
For wealth advisors and RIAs, this is a critical area to monitor. Should Harris pursue this aggressive tax on unrealized gains, it could necessitate significant rethinking of tax strategies, asset allocation, and estate planning for ultra-high-net-worth clients. Paul's fear of a market-wide selloff is rooted in the fact that many investors would likely seek to lock in gains before the new tax rates take effect, creating a domino effect across multiple asset classes.
However, Harris has yet to fully flesh out her tax policy. Kent Smetters, faculty director at the Penn Wharton Budget Model, told Business Insider that Harris' actual plans remain largely speculative at this point. Smetters confirmed only two concrete elements of Harris' proposals so far: a corporate tax rate increase from 21% to 28%, and an elevated long-term capital gains tax rate of 28% for those earning over $1 million annually. Both measures align with current trends in progressive tax policy, but the 25% tax on unrealized gains remains an unverified concern, albeit a topic of much discussion within financial circles.
This uncertainty is where wealth advisors need to stay agile. Tax policy changes are always a key consideration when managing high-net-worth portfolios, and with potential increases on the horizon, advisors will need to plan proactively. If Harris' administration pushes for higher corporate and capital gains taxes, many clients may seek ways to minimize exposure to these hikes. In particular, tax-loss harvesting, income shifting, and the use of tax-efficient investment vehicles such as ETFs may become even more essential strategies.
Paulson, while deeply concerned about the potential repercussions of a Harris presidency, also offered insights into the direction Trump would likely take if re-elected. Trump's economic plan revolves around the extension of the Tax Cuts and Jobs Act (TCJA), which reduced corporate tax rates to 21%. Paulson lauded the TCJA as a key driver of market growth, noting that it made U.S. businesses more competitive globally. Trump's promise to extend these provisions beyond their 2025 expiration is a core component of his platform.
For advisors working with business owners and high-income clients, Trump's pledge to maintain lower corporate tax rates is noteworthy. The extension of the TCJA would likely continue to bolster corporate profits and provide a more favorable tax environment for reinvestment. It would also maintain the favorable treatment of pass-through income for small business owners, an area that has seen considerable interest from entrepreneurial clients since the TCJA's enactment.
However, Trump's broader economic vision comes with its own set of challenges, particularly his stance on tariffs. The former president has proposed a sweeping 10% tariff on all U.S. imports, a move that has sparked significant debate among economists and Wall Street analysts. For advisors, Trump's tariff policy presents a potential risk factor that could disrupt global supply chains, raise costs for businesses, and contribute to inflationary pressures.
Mark Cuban, billionaire investor and owner of the Dallas Mavericks, recently weighed in on this debate via X (formerly Twitter), arguing that while Trump's tariff plan could stoke inflation, Harris' tax policy might be more beneficial for businesses in terms of after-tax profits. Cuban's comments highlight a key consideration for RIAs: How do these divergent economic policies impact different sectors of the market?
For advisors, a Trump administration's focus on tariffs would likely present both risks and opportunities. On one hand, sectors like domestic manufacturing could benefit from protectionist policies, leading to higher demand for goods produced within the U.S. On the other hand, companies reliant on imported materials or those with global supply chains might face significant headwinds, squeezing profit margins and potentially leading to increased costs for consumers. Advisors with clients in industries that could be directly impacted by tariffs will need to stay vigilant, exploring ways to hedge against the risks of trade wars and rising input costs.
Paulson, however, sees merit in Trump's tariff approach. In his Fox Business interview, he argued that tariffs could serve as a potent revenue generator for the federal government. While critics argue that tariffs function as a tax on consumers and could exacerbate inflation, Paulson suggests that the revenue generated from a 10% tariff on imports would provide the U.S. government with a substantial new income stream, potentially offsetting other tax burdens.
For wealth advisors, this presents a complex landscape. Tariff policies, especially at the scale Trump is proposing, could create volatility across both domestic and international markets. Advisors may want to assess the geographic exposure of their clients' portfolios and explore strategies to mitigate risks associated with increased trade barriers. Additionally, sectors such as technology, automotive, and consumer goods—industries heavily dependent on imports—could face disruptions, necessitating a reallocation of assets or the pursuit of alternative growth opportunities in more insulated sectors.
In contrast, Harris’ tax agenda appears more focused on redistributing wealth through higher taxes on corporations and high-income individuals. Advisors working with clients in the upper echelons of income and wealth distribution should be prepared for increased scrutiny on wealth accumulation and a potential rise in compliance costs. Estate planning, in particular, may become more challenging, as higher taxes on capital gains and potential levies on unrealized gains could make it more difficult for clients to pass on assets without significant tax liabilities.
In summary, the upcoming election presents a stark contrast in economic policy for high-net-worth individuals and their advisors. On one side, Trump offers an extension of the TCJA, which would keep corporate tax rates low but introduces new complexities through broad-sweeping tariffs. On the other, Harris' policies suggest higher taxes on corporations and wealthy individuals, with the potential for new, aggressive measures like a tax on unrealized gains.
For RIAs, the key will be staying nimble and responsive to policy shifts, both leading up to and following the election. Whether it’s navigating the risks posed by tariffs, preparing for potential tax hikes, or advising clients on how to best position their portfolios for an uncertain economic future, advisors will need to remain proactive, informed, and ready to pivot as new developments unfold.
