Harris wants a capital gains tax rate of 28%. How does it compare to the past?

With the upcoming elections in mind, many investors are interested in capital gains taxes and the potential impact of both parties' proposals on their wealth.

Democratic presidential candidate Kamala Harris last week proposed a 28 percent tax on long-term capital gains, or gains from the sale of assets owned for more than a year, for people earning more than $1 million annually. The plan would raise the top tax rate from 20 percent.

“I would go even higher,” Sen. Bernie Sanders (I-Vt.) said Sunday on NBC's “Meet the Press” of Harris' proposal. “I think she's trying to be pragmatic and do what she thinks is right to win the election.”

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Harris' plan differs from President Joe Biden's 2025 budget, which calls for a long-term capital gains tax of 39.6% for individuals earning more than $1 million annually.

Their plan would also increase the net investment income tax (NIIT) from 3.8% to 5%, the Wall Street Journal reported last week. Biden's 2025 budget calls for the same NIIT increase for those with modified adjusted gross income (MAGI) above $400,000.

Under current law, the NIIT applies to certain capital gains once the MAGI exceeds $200,000 for individuals or $250,000 for married couples filing jointly.

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

The Harris team did not immediately respond to CNBC's request for comment.

Although former President Donald Trump generally supports tax cuts, he has not put forward a capital gains tax proposal.

The issue was taken up in Project 2025, a “vision for a conservative government” developed by the conservative think tank The Heritage Foundation together with over 100 other right-wing organisations.

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

Several Trump officials were directly linked to Project 2025, but he himself distanced himself from the plan.

The Trump team did not immediately respond to CNBC's request for comment.

Of course, changes to the capital gains tax in either direction require congressional approval, and the majority situation in the House of Representatives and the Senate is uncertain.

Here you can compare the candidates' proposals with the current capital gains tax rates.

According to the Tax Foundation, capital gains tax rates have generally been lower than tax rates on “ordinary income,” or regular income, over the past few decades.

“We have applied preferential rates to qualified dividends and long-term capital gains, and that rate has shown a downward trend over time,” said Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation.

If Harris' bill goes into effect, the combined capital gains tax rate of 33 percent for top earners would be the highest since 1978, when the rate was nearly 40 percent, he said.

Harris' top tax rate of 28% on capital gains (excluding NIIT) would match the top tax rate that former President Ronald Reagan implemented in 1986 and which temporarily equaled the ordinary income tax rate.

Following former President George W. Bush's tax cuts, the top capital gains tax rate fell to 15 percent between 2003 and 2012. According to the Tax Policy Center, this was the lowest rate since the Great Depression.

However, capital gains tax revenues are more volatile than regular income tax revenues because they depend on when investors sell or “realize” gains, Watson says.

“It creates a lot of uncertainty for policy experts trying to make revenue estimates for these proposals,” he added.

Until then, average effective tax rates, or the percentage of taxes paid, were lower than maximum capital gains tax rates, according to the Tax Foundation.

Generally, investors can choose when to sell assets and pay capital gains taxes. Higher or lower future interest rates may prompt investors to postpone sales, experts say. Alternatively, investors can strategically take gains in the 0% range, depending on their current taxable income and long-term goals.

For 2024, investors pay 0%, 15% or 20% capital gains tax, plus 3.8% NIIT for higher earners.

“There is no doubt that there is a lock-in effect associated with capital gains taxes, and this will increase with a higher tax rate,” says Kent Smetters, professor of business and government at the Wharton School of the University of Pennsylvania.

Although there were proposals to tax unrealized gains, these plans did not receive broad support in Congress.