Debate Starts on Capital Gains Tax

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. Despite the administration's desire to reallocate income and enact a social agenda, such change cannot be easily enacted. 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 or for Exit Planning strategies. 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}

^{The S&P 500 Composite Index is an unmanaged index that is considered representative of the overall U.S. stock market. Past performance does not guarantee future results. Individuals cannot invest directly in an index. This content is developed from sources believed to be providing accurate information. This material is not intended as tax or legal advice. Please consult legal or tax professionals regarding your individual situation. The opinions expressed and material provided are for general information and are not a solicitation to purchase or sell any security.}