The Stock Market is threatened by Changes in the U.S. Tax Code
The stock market is expected to take a beating if tax rates on capital gains are increased by two thirds. There has been a lot of debate as to whether or not the economy will benefit or suffer because of these changes.
Apart from capital gains taxes, income taxes are also expected to increase. These changes will cause a lot of problems in the future unless the President and Congress agree on contentious issues. These two parties must agree before the year ends.
Investors in the stock market will have to protect their investments just in case taxes are increased. Many of them will have to sell before the new laws come into force. This is because an increase from 15 percent to 25 percent means that investors who will sell next year will lose 10 percent of their profits. For instance, those who plan to sell this year and get $100,000 in profits will pay $15,000 in 2012 taxes. If the same people liquidated their assets next year, they will have to pay $25,000 in 2013 taxes. The difference is quite significant, and many people will decide to liquidate their assets this year.
If a solution is not found before the election, the stock market might just experience the biggest sell-off in history as people rush to liquidate their paper assets before the next tax year.
People often consider many factors, including tax rates, when making investment decisions. This means that investors will consider what they will pay in 2012 taxes before they invest in anything.
- The Relationship Between Capital Gains And Economic Growth (2012taxes.org)
- Capital Gains Ignorance Leads To Catastrophic Losses (2012taxes.org)
What The Increase In Tax Rates Mean For The Economy by Steven Patterson