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.
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 but challenging yourself to be patient during this period of debate and uncertainty may be helpful.
Remember, this article 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.
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