Biden's capital gains tax hike may not bury the stock market: strategists

Elias Hubbard
April 28, 2021

Brian Deese, the director of the National Economic Council, confirmed during a White House press briefing that Biden's proposed tax hike will apply to about 500,000 Americans earning more than $1 million, or about the top 0.3% of USA households.

The White House has been contacted for comment.

"We're talking about a tax change that would affect the three-tenths of one percent, the top sliver of households", Deese told reporters.

"The trend of net equity selling and falling stock prices around capital gains rate changes has usually been short-lived and reversed during subsequent quarters", Kostin said.

Biden, who is due to address a joint session of Congress on Wednesday night, has said wealthy individuals will have to "pay their fair share" to fund his policy priorities - a stance recent polls show most Americans support.

Deese argued that the capital gains tax hike would not harm economic growth or investments.

Yet Democrats' razor-thin majorities in the House and the Senate mean the top rate for capital gains tax could well only end up at around 28%, according to analysts at Goldman Sachs.

Biden's capital gains proposal would put the tax rate well above that high-water level from 1969, meaning a repeat performance for the S&P 500 this time around must be carefully considered by investors.

Goldman estimates that the wealthiest households own $1 trillion to $1.5 trillion in unrealized equity capital gains, or about 3% of the total USA equity market cap.

Stocks initially sold off 1% last Thursday after news broke that Biden will propose almost doubling the capital gains tax rate to 39.6% for those making more than $1 million annually, but those losses were recovered on Friday.

Biden is readying increases for the wealthy, including hikes on capital gains and the top marginal income tax rates, after already pushing to raise the corporate rate and to close loopholes letting American firms dodge taxes by shifting assets overseas. By comparison, middle-income households - with an income between $52,000 and $93,000 - would likely see their tax bill increase by just $260 per year.

Those earning between $50,000 and $75,000, for example, paid an average tax rate of 2.4% in 2018, the first year the Republican tax cuts were in effect.

Other reports by Click Lancashire

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