- According to Goldman Sachs, Joe Biden’s planned capital gains tax could put immediate selling pressure on the shares.
- In a note on Friday, the company explained that the latest capital gains tax hike in 2013 triggered a sell-off of shares valued at approximately $ 100 billion by wealthy individuals.
- However, those people who sold quickly bought back stock just a few months later, leading Goldman to conclude that the family selling around the tax hikes will be “short lived and fully compensated in subsequent quarters.”
According to Goldman Sachs, Biden’s projected capital gains tax hike could put immediate selling pressure on the shares given what happened in the markets after previous rate hikes.
A team of Goldman analysts led by Arjun Menon wrote 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 higher-income individuals.
History has shown that capital gains tax increases result in stock sell-offs. After the last increase in the capital gains tax rate in 2013, the top 1% of households sold 1% of their initial shares and mutual fund assets, worth approximately $ 100 billion today. , in the three months prior to the rate hike, according to Goldman. As of 2020, the richest 1% of Americans own 53% of all household stock. Their collective actions can move the markets.
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While this sale may pose a downside risk to stock allocations in 2020, Goldman said it will not translate into a long-term sell-off or slow economic growth.
In the months following the 2013 rate hike, the top 1% repurchased more shares than they had sold before the change, Goldman said. Their reduction in equity exposure was only temporary and Goldman said it believes the same pattern is likely to repeat itself.
“We expect household sales around changes in the capital gains tax rate to be short lived and fully offset in subsequent quarters,” Goldman wrote.
Indeed, Goldman has predicted that the richest 1% of Americans will be the main driver of total demand for stocks in 2021, even with a “blue wave” election result.
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