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.
We are happy to help, if you have any questions or would like additional insight, please feel free to reach out to me at email@example.com or 800.307.0376.
Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. Investment Advice and 3(38) Investment Fiduciary services offered through Diversified Financial Advisors, LLC, a Registered Investment Advisor. 3(16) Administrative Fiduciary Services provided by PISTL Service Corporation. Discretionary Trustee services provided by Printing Industries 401k Trustees. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
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
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