Now and again, the price action on Wall Street can surprise even the most seasoned investors.
Look no further than when President Biden in late April proposed an increase in the tax on capital gains to 39.6% from 20% for those Americans who earn more than $1 million.1
Stocks dropped on the news, with the Standard & Poor’s 500 index down nearly 1% for the day.2
The “sell first, analyze later” reaction was curious since both Main Street and Wall Street largely expected the proposal. Several times on the campaign trail Biden said he wanted America’s wealthiest households to contribute more as a percentage of their income.3
It’s critical to remember that any capital gains tax proposal will likely face a long, uphill battle before becoming law. One prominent investment bank already has said it projects a more modest increase in the rate, which may land at around 28%.4
So at this point, it's uncertain what type of legislation will be taken up by Congress. Challenge yourself to be patient during this period of debate and uncertainty.
We’re keeping a close eye on the process, and we are starting to analyze what a higher capital gains tax may mean for portfolios. Remember, this letter is for informational purposes only. It is not a replacement for real-life advice. Any portfolio changes may require input from your tax or accounting professionals.
If you are concerned about capital gains—or any other proposals being debated on Capitol Hill—please give us a call. We'd welcome the chance to hear your perspective, and hopefully, we can provide some guidance.
1. Bloomberg.com, April 22, 2021
2. FoxBusiness.com, April 22, 2021
3. CNBC.com, April 22, 2021
4. Markets.BusinessInsider.com, April 23, 2021
Potential Changes in Capital Gains
May 04, 2021