A number of foreign media quoted sources as saying that Biden plans to raise the capital gains tax for people earning more than $1 million a year to 39.6% from the current 20%. The capital gains tax for wealthy people, including New York and California, will exceed 50% after adding investment income surtax and state-level taxes.

Some on Wall Street are worried about this. However, Goldman Sachs Group believes that this is just the latest "daydream test balloon" of progressives. In fact, it will not happen, but the negotiation "asking price" they set. Goldman Sachs Group predicts「Congress can only reach a more modest increase, which may be raised to28%Around」。

Therefore, Goldman Sachs Group believes that there are no actual "surprises" in the bill proposed by Biden, which has been proposed before during the general election. Although it is not clear when the tax rate will be raised,Goldman Sachs Group's economists believe that "it is unlikely that the new tax rate will be applied to gains realized before May, and the increase is more likely to take effect on January 1, 2022."

Alec Phillips (Alec Phillips) of Goldman Sachs Group wrote in the report:

Congress is only expected to pass a reduced version of the tax increase bill. If the long-term capital gains tax were raised to 43.4%, it would be the highest in more than 100 years. We think it is most likely to rise to 28%, which is somewhere between the current tax rate and the rate proposed by Biden, which was agreed by President Reagan and the Democratic House of Representatives decades ago.

Phillips also said that the problem is likely to continue to change in the coming months. He expects President Biden to discuss the issue in other topics when he speaks at a joint session of Congress on April 28. The Biden administration is also likely to release tax proposals, including capital gains, in its fiscal 2022 budget to Congress in early May. However, the exact timing of the release is still unclear.

In the meantime, centrist Senate Democrats, such as senators Joe Manchin (Joe Manchin) and Kelston Cinema (Kyrsten Sinema), may be commenting on who has the key swing vote.

As for the effective time of the tax increase, Phillips believes that there are three possibilities:

first,No earlier than MayCongress sometimes brings the tax policy into effect from the date it submits the bill to the House of Representatives.

Second,Sometime between July and SeptemberTo enable the higher tax rate to take effect on the income realized after the bill takes effect

Third,Effective from January 1, 2022The last time Congress legislated to raise interest rates, the policy became law in October 1986, but it did not take effect until January 1987.

Phillips concluded that although it cannot be completely ruled out whether the tax increase will be retroactive to previous gains, "but we believe thatIt is highly unlikely to trace the benefits realized by May 2021」。

As for the market impact, Goldman Sachs Group, led by David David Kostin, wroteAs early as October, higher tax rates will slow the rally of US stocks, but for a short period of time, US stocks will rise again later.Goldman Sachs Group's strategist wrote:

Historical records show that before the capital gains tax rate was raised, share prices fell, equity allocation decreased, and momentum stocks underperformed. However, any potential sell-off will be short-lived and will be reversed in subsequent quarters. "

Logically, stocks with the biggest gains are likely to be the hardest hit in the short-term decline, Goldman Sachs Group said. These include large-cap high-tech stocks such as Tesla, Inc. and FAANG; in the S & P 500, Gap Inc.,L Brands Inc. And Etsy Inc. They are also expected to take a hit, with each rising at least 200 per cent in the past 12 months.

Goldman Sachs Group says that when the Obama administration raised the capital gains tax in 2013, it was no surprise that the richest 1 per cent of Americans were the biggest share sellers. But even so, the s & p 500 rose 30% that year, its biggest gain in nearly a decade.

Goldman Sachs Group estimates that by October, the top 1 per cent of Americans will hold unrealized capital gains of about $1,000bn. In 2013, strategists wrote, the group sold "1 per cent of its initial equity assets, equivalent to about $100 billion of shares at current values". But once the tax law came into effect in 2013, the group switched to buying shares equivalent to 4% of their holdings, far more than they sold.

In the model tracked by Keith Parker, head of US equity strategy at UBS, the capital gains tax rate is a variable. Historically, all other things being equal, when this tax rate changes, so does the price-to-earnings multiple of the S & P 500.The newly proposed tax rate could mean a 7 per cent reduction in PE multiples.This is because higher tax rates may demoralize the stock market and make investors less willing to pay taxes on earnings.

Parker saidKinetic energy stocks are likely to be hit the most.As was the case after the long-term capital gains tax was raised from 20% in 1986 by 28%. Parker said:

"so the other thing to consider is whether stocks with a lot of embedded capital gains are starting to price it. And we have seen some evidence that this has happened in the past. "