Biden’s Tax Plan Could Impact Investors and Entrepreneurs: Market Commentary from Cabana’s CEO – May 4, 2021

6 months ago

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U.S. equity markets finished the month of April with stellar performance. April gains were on the back a rally that began in early March after some choppy and sideways trading at the start of the year. The benchmark S&P 500 (SPY) finished up more than 11% year-to-date. Earnings continue to roll in and support the move up in stocks. Sixty percent of companies have now reported Q1 earnings with 86% beating estimates, according to FactSet. Interest rates remain rangebound and have even pulled back over the past six weeks. This is welcome news for investors in conservative portfolios and other interest-rate-sensitive assets. The recent moderation in rising interest rates follows an epic blastoff in rates that began in September of last year. April was a great month for all types of investors, as all major asset classes participated in the rally to some degree.

All eyes now turn to proposals out of the Biden administration for a massive infrastructure and social spending package, funded by the largest tax increases in modern history. The proposal to double the capital gains tax and do away with the step-up in basis provisions within the IRS code would have significant implications on the wealthy (as intended), but also on all small business owners and other entrepreneurs who would now owe federal and state governments more than half of the proceeds when their business is sold (in as many as 12 different states).

This may result in a disincentive to invest and start businesses. I read an article in the Wall Street Journal this weekend that evaluated data from a variety of government sources, including the Congressional Budget Office. Data suggests that the result of this could actually be a loss of income in the amount of $124 billion over 10 years, as millions of people refuse to give half of their earnings to the government. The article ended with the following: “The Biden tax increase on capital gains won’t matter to Bill Gates or Jeff Bezos who can hire lawyers to shelter their future gains. The people who will be hit unfairly are the middle-class strivers or entrepreneurs who might be capital gains ‘rich’ after a lifetime of work and investment.” Food for thought.


February 23, 2021

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