John Paulson, a hedge fund billionaire and Trump donor, predicts that the market will crash under Harris's tax plans.

John Paulson, a billionaire hedge fund manager known for opposing the housing market during the financial crisis and supporting former President Trump, warned that a collapse in the financial markets and a recession could occur if Vice President Kamala Harris' proposed tax plans are implemented.

"According to Paulson, raising the corporate tax rate from 21 to 28%, increasing the capital gains tax from 20% to 39%, and adding a 25% tax on unrealized capital gains would lead to a market crash, as stated in an interview on CNBC's "Money Movers" on Friday with Sara Eisen."

The Democratic presidential candidate proposed a lower tax rate of 28% on long-term capital gains for households with an annual income of $1 million or more, compared to President Biden's proposed rate of 39.6% in his 2025 fiscal-year budget.

Although Harris initially supported Biden's proposed tax hike on unrealized gains for wealthy households, sources close to her campaign, including investor Mark Cuban, have indicated that she is not interested in this tax and there is uncertainty about whether such a plan would pass Congress.

Paulson gained notoriety and amassed wealth by placing a large wager against mortgage bonds using credit default swaps prior to the financial crisis. As the founder and president of family office Paulson & Co., he has been a significant contributor to Trump's 2024 presidential campaign and is said to have provided counsel on the creation of a U.S. sovereign wealth fund.

If the plan to tax unrealized gains were implemented, the 68-year-old investor believes the economy could quickly tip into a recession.

The implementation of a tax on unrealized gain by the Biden-Harris team could lead to massive selling of homes, stocks, companies, and art, potentially putting the country into a recession. Therefore, it is hoped that they will not pursue this if elected.

Some economists and strategists on Wall Street believe that increasing the corporate tax rate from 21% to its previous level could negatively impact S&P 500 company earnings and share prices, but none from major firms have predicted a significant pullback like the one Paulson described.

Some worry that Trump's economic plans may not be as market-friendly as Paulson predicts, as proposed tariffs could cause inflation and additional tax cuts could increase the budget deficit.

Trump has reportedly discussed Paulson as a potential Treasury secretary in a second administration. In a CNBC interview, Paulson stated that tariffs would not cause inflation if used appropriately. Additionally, Paulson said that lower taxes would stimulate economic growth, which would increase revenue and close the budget deficit.