Is it time to sell? Hear from Wall Street on Biden's tax proposal

Investing with moomoo joined discussion · Apr 23, 2021 05:22

Is it time to sell? Hear from Wall Street on Biden's tax proposal

What happened?

Investors currently pay a 23.8% top rate on long-term capital gains.

On Thursday, President Joe Biden is expected to propose doubling the tax rate wealthy Americans pay on investment returns when they sell stocks and other assets.

Who gets affected?

For those earning $1 million or more, the new top rate, coupled with an existing surtax on investment income, means that federal tax rates for wealthy investors could be as high as 43.4%, according to Bloomberg.

How potential tax hike impacts the stock market?

The new proposal is expected to be released next week, and Wall Street doubts that it could pass the Senate.

Still, investors see risks that a tax hike motivates panic selling -- stock investors can unload shares to lock in the current rates.

“Some traders are looking for an excuse to lock-in profits and they might choose to use this tax story as their catalyst.”
-- Ed Moya, senior analyst at FX brokerage OANDA

And this weighs especially on technology and other sectors that skyrocketed last year.

“There’s a lot of capital gains built into those names, and we think they would be the ones who are most likely to take it on the chin.”
-- Steve Chiavarone, portfolio manager and equity strategist at Federated Hermes

Is it time to sell? Hear from the pros

1. Don't “push the sell button” as many aspects of the tax proposal are still unclear.

“I wouldn't necessarily push the sell button on rumors. That doesn’t make a lot of sense to me. There will be plenty of time to plan and respond to any tax or tax proposal that’s ultimately in place."
-- Jack Ablin, chief investment officer and founding partner of Cresset Capital Management

2. Even if the tax proposal gets passed, dividend-paying stocks will become more attractive.

“If you do have the capital gains tax go above and beyond that on dividends, it could actually end up favoring dividend-paying equities going forward.”
-- Burns McKinney, a portfolio manager at NFJ Investment Group in Dallas

3. Sit tight if you are a long-term investor.

“Just four years ago, the Trump administration was cutting taxes for many individuals...If you know you’re going to be sitting on something a long time, don’t worry about it.”
He noted how fast conditions can change in the market.
-- Leon LaBrecque, an accountant and certified financial planner at Sequoia Financial Group

But taxpayers who know they’ll be selling a highly appreciated asset next year anyway, for example, should consider doing it now just in case capital-gains taxes do increase, he added.

Source: Bloomberg, Reuters, CNBC