04232021 :: Friday finance

A partial digest

Philip Valenta, MSF
7 min readApr 25, 2021

Friday was day 94 of the Biden-Harris administration. There is a proposal to raise capital gains taxes a significant amount to the highest the rate has been post WWII, but only for a very small percent of wealthier individuals. Raising the top marginal income tax rate is being floated, as well. Traditional financial markets didn’t take long to shake it off, though. Crypto has been another story, which may say something about who owns a good chunk of it.

While on the topic, a brief review of the history of capital gains taxes is in order. The record reveals that capital gains taxes were raised 10 times since 1950. Almost every year it happened, the percentage annual average price return for the S&P 500 was positive. In years where it was the only type of tax raised among a group of three including personal and corporate taxes, the S&P 500 even saw bumper returns of 16% and 19%, in 1972 and 1976, respectively.

Source: Fidelity

The key is to always understand what else is co-occurring in that moment. Frequently, there is additional fiscal spending that may be helping to boost returns, just as there is now (not to mention what else is on the table with future infrastructure and so on). “There is never ‘one thing’ for the market.”¹ Hence, we would not expect all market action to be reduced to the single driver of a capital gains tax increase.