Biden's new tax proposal worries investors
Financial advisers and analysts say they have already received a flurry of phone calls and emails from clients asking about President Biden’s proposed tax plan, which would tax those making more than $1 million a year at a rate of 39.6% on profits on assets such as stocks, bonds, real estate and businesses. That is nearly double the current rate of 20%.
Many want to know what changes, if any, they should make to their investments. And others are worried about how markets will fare under a higher-tax rate environment.
“Conversations about taxes have picked up over the last two weeks,” said Marc Scudillo, managing officer of EisnerAmper Wealth Management & Corporate Benefits LLC. “This is coming much faster than people anticipated,” Mr. Scudillo added, referring to some investors’ belief that Mr. Biden wouldn’t attempt a tax overhaul until 2022.
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While the proposal requires approval by Congress, where it will be subject to negotiations and possible changes, here is what experts say investors should take away from the plan:
**Not all investments would be subject to the new tax rate.**
Most investors hold a variety of assets, ranging from taxable brokerage accounts to IRAs and employer-sponsored savings plans like 401(k)s. Only some of these accounts are taxable.
In fact, in a Tax Policy Center study, analysts estimated just a quarter of U.S. corporate stocks are held in taxable accounts, down from more than four-fifths in 1965. Much of the rest appears to be held in accounts that are exempt from taxes, including retirement accounts, pension funds and, in many cases, assets owned by foreign investors.
The actual number of taxpayers who would be affected by the rate increase will also be relatively limited. The White House estimates just 0.3% of taxpayers fall into the income bracket that would be hit by the boost.