I love when people ask me what could derail the market, any market for that matter. Lately, I have said it won’t be COVID or a third world nation with nukes. However, it could certainly be a monetary policy pivot shift by the Fed or definitely be a fiscal or tax policy change in DC. On Thursday we learned about the Biden administration’s proposed seminal change in capital gains taxes to a maximum of 43.40% for the highest income earners. Yes, I know. It was a trial balloon.
My initial observations were that it was an idiotic proposal if the administration would continue to play the theme that the economy remains in crisis and desperately needs trillions more in aid. You can’t have it both ways. My second observation was that the plan is D.O.A. I do not believe all 50 Democrat Senators will vote for this.
To get a sense for public sentiment I often read various Twitter feeds. In this case, I literally laughed out loud when I read those who wanted to “soak the rich” or “take what isn’t theirs in the first place”. Sorry to those folks, but 43% for cap gains is ridiculously absurd. Forget about the couple who owns Apple and made a lot of money over the years. Think about capital formation and how new businesses are launched. That’s where high capital gains will have the most dramatic.
Let me conclude with this. The Tax Foundation estimates that over 10 years, Biden’s proposal would lead to $123 billion is LESS taxes as investors would likely sell ahead of the plan being enacted.
