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History says Biden's planned capital-gains tax will put immediate selling pressure on stocks, according to Goldman Sachs

Biden's planned capital-gains tax hike may put immediate selling pressure on stocks given what's happened in markets after previous rate increases, according to Goldman Sachs.

Article originally published by Business Insider. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

Summary List Placement
  • Joe Biden's planned capital-gains tax may put immediate selling pressure on stocks, according to Goldman Sachs.
  • In a Friday note the firm explained that the last capital-gains tax hike in 2013 sparked a stock sell-off worth roughly $100 billion from wealthy individuals.
  • However, those individuals who sold quickly bought back stocks only a few months later, leading Goldman to conclude that the household selling around tax hikes will be "short-lived and fully offset in the subsequent quarters."

Biden's planned capital-gains tax hike may put immediate selling pressure on stocks given what's happened in markets after previous rate increases, according to Goldman Sachs.

A team of Goldman analysts led by Arjun Menon wrote on Friday that Joe Biden's proposed changes to the corporate tax code would be complemented by an increase in the tax rate applied to capital gains and dividends for the highest income individuals.

History has shown that capital-gains tax hikes spark stock sell-offs. After the last capital-gains tax rate increase in 2013, the wealthiest 1% of households sold 1% of their starting equity and mutual fund assets, worth about $100 billion today, in the three months leading up to the rate hike, according to Goldman. As of 2020, the wealthiest 1% of Americans own 53% of all household stocks. Their collective actions can move markets.

While this selling may be a downside risk to stock allocations in 2020, Goldman said it will not result in a long-term sell-off or slowing economic growth.

In the months following the 2013 rate hike, the top 1% bought back more stocks than they had sold prior to the change, said Goldman. Their reduction in stock exposure was only temporary, and Goldman said it believes that same pattern is likely to occur again.

"We expect household selling around capital-gains tax rate changes should be short-lived and fully offset in the subsequent quarters," Goldman wrote.

In fact, Goldman forecasted that the wealthiest 1% of Americans will be the largest drivers of total stock demand in 2021, even with a "blue wave" election outcome.


This article was written by Emily Graffeo from Business Insider and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

Article originally published by Business Insider. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

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