Dow closes more than 300 points lower following reports of Biden eyeing capital gains tax hike
U.S stocks reversed lower in a swift fashion on Thursday after reports that President Joe Biden is slated to propose much higher capital gains taxes for the rich.
The Dow Jones Industrial Average dropped 321.41 points, or 1%, to 33,815.90. At its low of the day, the blue-chip benchmark fell 420 points. The S&P 500 erased earlier gains and closed 0.9% lower at 4,134.98, while the Nasdaq Composite slid 0.9% to 13,818.41.
Bloomberg News reported Thursday afternoon that Biden is planning a capital gains tax hike to as high as 43.4% for wealthy Americans. The proposal would hike the capital gains rate to 39.6% for those earning $1 million or more, up from 20% currently, according to Bloomberg News, citing people familiar with the matter. Reuters and the New York Times later matched the headlines.
“Biden’s proposal effectively doubles the capital gains tax rate on $1 million income earners,” said Jack Ablin, Cresset Capital Management’s founding partner and CIO. “That’s a sizable cost increase to long-term investors. Expect selling this year if investors sense the proposal has a chance of becoming law next year.”
Growth stocks, which could come under selling pressure on higher capital gains taxes, led the intraday decline on Thursday with shares of Tesla and Amazon falling 3.3% and 1.6% respectively. The iShares S&P 500 Growth ETF fell 1%, more than its value counterpart.
Investors also digested a better-than-expected reading on weekly jobless claims. The Labor Department said Thursday that first-time claims for unemployment insurance totaled 547,000, which was below the Dow Jones estimate for 603,000.
Also on Thursday, the Republican party set forth its counteroffer to Biden’s $2 trillion infrastructure plan. The senators proposed a $568 billion framework that includes funding for bridges, airports, roads and water storage. It does not include tax increases.
Still, the fears on the capital gains tax increase could be overblown as Democrats hold only narrow majorities in both the Senate and House, which could make it hard to approve any aggressive proposal.
Reference: CNBC
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