Newly revealed details show that the Biden government plans to raise taxes sharply for high-income earners, not just for businesses.

Us President Joe Biden will unveil a plan next week to fund education, child care and other spending programs by raising taxes on millionaires, according to media reports on Thursday et. Biden will propose a 39.6% capital gains tax on wealthy Americans. Together with the existing surtax of 3.8 per cent on investment income, the overall federal capital gains tax rate for the rich could be as high as 43.4 per cent. If the news is true, it means that Biden intends to impose a capital gains tax on the rich at about twice the current level. The current federal capital gains tax rate is 20%.

The media pointed out that taxpayers with an annual income of at least $1 million may face a capital gains tax of more than 50%. With this tax plan, taxpayers like California could face a combined federal and state capital gains tax of 56.7%, and such total capital gains tax for high-income people in New York could be as high as 52.22%.

The media has mentioned that Biden's tax increase policy is always a dark cloud over US stocks. Facts have proved that this statement is true. After the news of the tax increase plan, the US stock market plunged for a short period of time, and in less than 20 minutes, the Dow's decline rapidly widened from less than 20:00 to more than 190 points. The S & P 500, which rose more than 0.1 per cent, quickly turned lower, while the Nasdaq, which was up nearly 0.5 per cent at midday, has also fallen since.

The tech tycoon is a very typical rich group with more capital gains, which comes from the founder's original shareholding, equity incentive plan and so on. If the expectation of higher capital gains becomes stronger, the more likely it is that holders of technology stocks will sell their technology stocks ahead of time.

Among large-scale technology stocks, Tesla fell 3.28%, Facebook fell 1.64%, Microsoft fell 1.31%, Amazon fell 1.58%, and Apple fell 1.17%. Among the chip stocks, Micron is down 5.34%, Invida is down 3.32%, TSMC and Intel are down nearly 2%, and Broadcom is down more than 1%.

Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, commented that no one was surprised that Biden was going to raise capital gains tax, but he didn't expect it to come so quickly and by so much. The tax increase is likely to take effect in 2022, unless it takes effect backdating in 2021, so there will be at least a little selling pressure this year. Although retail investors, who are the mainstay of daily trading, are under a lot of pressure, in fact, most of the stocks held by individuals are in the hands of the rich.

Chris O'Keefe, managing director of Logan Capital Management, predicts that the initial impact will be people's decision to take profits now before tax increases. Earnings may be locked in early this year. Capital flows are likely to fall as people may be more reluctant to lock in profits and move into other assets. If such a high tax has to be paid, investors will be less willing to trade.

Sameer Samana, senior global market strategist at Wells Fargo Investment Research, believes that if this is the beginning of a less market-friendly policy, the rally will be more volatile now. I am more worried about an increase in capital gains tax than an increase in corporate tax. The latter will have a much greater direct impact on the way people invest, resulting in a greater cooling.

Dan Suzuki, deputy chief investment officer of Richard Bernstein Advisors LLC, said Biden's plan was more aggressive than expected. However, he will personally follow the market reaction, because such a bill seems highly unlikely to be passed by Congress, so its actual strength will be greatly reduced.

On the 7th of this month, Biden officially announced more than $2 trillion in infrastructure and economic recovery plans in a speech in Pittsburgh, the traditional industrial hub where his 2019 presidential campaign began. The day before the Pittsburgh speech, the White House announced details of the tax increase plan, including two tax increases to prevent the outflow of corporate profits-raising the corporate income tax rate from 21 per cent to 28 per cent and raising the "global minimum tax rate" for overseas subsidiaries of US companies to 21 per cent from about 13 per cent today.

Goldman Sachs estimates that if the Biden tax increase is passed by Congress, it could lead to a 9 per cent drop in (EPS) per share in the S&P 500 next year. Tobias Levkovich, chief u. S.analyst at Citibank, believes that compared with the 7% increase in corporate tax proposed by Biden, an increase of just 4% could reduce the EPS of the S&P 500 by 3%.

Analysts generally believe that Biden's plan to raise the corporate tax rate will be the most immediate risk for the US stock market in the second half of this year and even 2022, not only to erode corporate profits, but also to curb corporate hiring plans.

Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.

JRFX is an online CFD broker providing more than 50 products for Forex, metals and commodities. Open a trading account within a minute. Deposit 100USD and download our MT4 trading platform now!