president Joe Biden unveiled its new tax plan this week, and investors have been delving into the proposal to see how they might to be affected.
What happened? Biden’s new tax plan would raise the upper marginal income tax rate for single parents earning more than $400,000 and married couples earning more than $450,000 from 37% to 39.6%.
The plan would also introduce a minimum tax of 25% for Americans with wealth greater than $100 million.
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In addition, Biden’s plan would tax capital gains of Americans earning more than $1 million at the same rate as regular income, closing the so-called carried interest gap.
Biden also proposes quadrupling the 1% tax on share buybacks, first introduced in January, and raising the corporate tax rate significantly from 7.8% to 28%.
Why it matters: Pratik PatelManaging Director of BMO Family Office says corporate tax hikes, capital gains and buybacks could have a significant impact on investors.
“An increase in the corporate tax rate would negatively impact corporate earnings, although the new tax rate proposed in Biden’s plan would still be lower than the rate before the 2017 tax cuts,” Patel said Friday.
Patel also said that a higher tax on buybacks could have a negative impact on share prices.
“A tax on share buybacks could trigger short-term volatility in certain stocks that have historically relied on share buybacks as leverage to boost share prices,” he said.
Petrol Gas Take: The SPDR S&P 500 ETF Trust SPY didn’t react much to Biden’s tax proposals, and probably for good reason. Patel said his tax plan is essentially nothing more than a “wish list” and unlikely to pass the Republican-controlled House of Representatives.
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