The MSM pundits declared this week: “US stocks are headed for a big drop on Mr. Biden plan to double the capital gains tax to 40%% for America’s wealthy.” It did not happen, as the market ignored it.
Currently, short-term capital gains are taxed at the same rates as income, but long-term gains are taxed at lower rates.
Capital gains are the reward for risky tech investments that take years to pay off, so when capital gains tax rates rise, investors move their funds to safer investments.
Mr. Biden’s proposed 2Xing of the Top capital gains tax rate from 20% to 39.6% will undermine investment in small businesses with cutting-edge technology.
Further, in order to help fund spending on the $2-T+ American Jobs Plan, Mr. Biden proposes raising the corporate tax rate to 28% from 21% and eliminating various elements in the tax code that benefit America’s business. The result is diminished federal tax income as big businesses and wealthy investors will leave the US tax jurisdiction. All of that while Mr. Biden focus is enlarging the welfare state. We expect to hear more from him next week on his new version of ‘infrastructure‘.
In an interview with Bruce WD Barren speaking as a businessman he notes that, “Because taxes are due upon realization rather than accrual, taxpayers can use several strategies to time realizations in way that reduces liability.
“A large body of empirical research shows that when taxes on capital gains increase, realizations of capital gains fall and vice versa.”
“It has been proven in our history and as late as our 45thn President did that lower tax rates will give people more after-tax income that could be used to buy more goods and services. This is a well-supported doctrine that demand-side argument to support a tax reduction is an expansionary fiscal stimulus.
“Further, reduced tax rates cause a boost in savings and investments, which would increase the productive capacity of the economy. This is why the current Congress should focus and why.
“But most like the current President have little if any real knowledge of business.“
Adding that President Biden’s desires directly counter President Trump (45) efforts as a businessman to Make America Great Again.
My work shows that the reopening trade is very strong as evidenced Friday when strong economic data triggered a 2% rally in small caps and banks spiked as investors rotated portfolios from some growth to some value issues.
Cyclical industries tend to lead the market in times of positive and accelerating economic growth, but as growth Tops and decelerates defensive industries usually outperform.
Friday, the benchmark US stock market indexes finished at: DJIA +227.59 at 34043.49, NAS Comp +198.40 at 14016.83, S&P 500 +45.19 at 4180.17
Volume: Trade on the NYSE came in at 778-M/shares exchanged.
HeffX-LTN’s overall technical outlook for the major US stock market indexes are Very Bullish at the wk ended 23 March 2021.
- Russell 2000 +15.0% YTD
- S&P 500 +11.3% YTD
- DJIA +11.2% YTD
- NAS Comp +8.8% YTD
Looking Ahead: Investors will receive Durable Goods Orders for March Monday.
Have a healthy weekend, Keep the Faith!