Biden has made another big move and is ready to attack the rich. After all, so much water (fiscal deficit) has been thrown out, and he must always find a way to recover it. As soon as the news came out, U.S. stocks plunged instantly. The Dow once fell more than 400 points. As of the close of U.S. stocks, the decline had narrowed, closing down 0.94%.
Biden intends to levy on the rich
Up to 43.4% capital gains tax
According to Bloomberg News, not only for companies, the Biden government also plans to increase taxes for high-income groups. According to people familiar with the matter, US President Biden will propose to nearly double the capital gains tax rate for the wealthy to 39.6%. Coupled with the existing investment income surcharge, this means that the federal tax rate for investors may be as high as 43.4%.
The person, who asked not to be named, said that the plan will increase the capital gains tax rate for people with an income of $1 million and above from the current 20% to 39.6%. The plan has not yet been made public.
Jack Ablin, founding partner and chief information officer of Cresset Capital Management, said: “Biden’s proposal actually doubles the capital gains tax rate.” For long-term investors, this is a huge cost increase. If investors think that the proposal may become law next year, they can expect to sell it this year. ”
This proposal may overturn a long-standing clause in the tax law that the tax on investment returns is lower than the tax on labor. In his campaign, Biden advocated balancing capital gains and income tax rates for the rich. He said that many of the rich pay lower tax rates than middle-class workers, which is unfair.
Biden is expected to announce this proposal next week as part of the tax increase to fund social expenditures in the upcoming “American Family Plan.”
Then White House Press Secretary Jane Psaki said that Biden believes that the expenditures (planned by American families) may come from the richest people, but the plan has not yet been finalized.
This is the first time that the media has exposed the Biden government’s specific tax increase targets for the wealthy. Prior to this, it was mainly to increase taxes on enterprises.
On the 7th of this month, Biden delivered a speech in Pittsburgh, the place where his 2019 presidential campaign began, and officially announced plans for infrastructure and economic recovery of more than 2 trillion U.S. dollars. The day before the Pittsburgh speech, the White House announced the details of the tax increase plan. Two of the tax increase measures to prevent the outflow of corporate profits have been the most aggressive-increasing the corporate income tax rate from 21% to 28%; The “global minimum tax” (“global minimum tax”) has been increased from the current 13% to 21%.
After the 15 trillion infrastructure plan
Biden may have another 6.5 trillion new plan!
According to Reuters, the capital gains tax increase proposal for the wealthy is mainly to provide financial support for the upcoming American Families Plan, which is expected to be around US$1 trillion, or approximately RMB 65,000. Billion.
The main measures of the plan include helping American workers learn new skills, expanding subsidies for childcare, and allowing everyone to receive free community college tuition.
According to Market Watch, Biden may officially announce the plan as early as April 28. So far, the White House has not provided details. But White House Press Secretary Jen Psaki confirmed that Biden will discuss the plan at a predetermined location in Congress next week.
According to CNBC, the plan will be distinguished from the US$2.3 trillion (approximately 15 trillion yuan) infrastructure plan. The main source of funding for the previously announced US$2.3 trillion infrastructure plan will be to raise the corporate tax rate to 28%.
U.S. stocks diving
The Dow plunged 400 points intraday
The news that the capital gains tax might be doubled, and the stock market reacted violently.
On the one hand, the market is worried that the rich may sell stocks before the capital gains tax rate increases (even if the increase in capital gains tax is still very uncertain); on the other hand, because the market expects that if the tax rate really increases, the enthusiasm of the rich to trade stocks will be Greatly reduced.
The Dow quickly dived from 34,126 points in intraday trading, hitting a low of 33717 at one time, and slumped about 400 points in intraday trading. Near the end, the Dow rebounded and closed down 0.94% or 321.41 points.
In the plate, the Nasdaq and S&P 500 became popular, but they also dived after the news of tax increases. As of the close, as of the close, the S&P 500 index fell 0.92% to 4134.98 points. The Nasdaq index fell 0.94% to 13,818.41 points.
Worried about selling by the rich
Technology stocks fell
Technological tycoons are a very typical group of wealthy people with more capital gains. Their capital gains come from the original holdings of the founders, equity incentive plans, and so on.
If the expected increase in capital gains gains becomes stronger, the more likely it is that technology stock holders will sell technology stocks in advance. Therefore, on Thursday, local time, when the market dived, technology stocks also generally fell.
Among the large technology stocks, Tesla fell 3.28%, Facebook fell 1.64%, Microsoft fell 1.31%, Amazon fell 1.58%, and Apple fell 1.17%.
Among chip stocks, Micron Technology fell 3.34%, Nvidia fell 3.32%, TSMC and Intel fell nearly 2%, and Broadcom fell more than 1%.
During the epidemic, the rich set a record
The fastest growth rate of wealth in human history
Since 2020, the impact of the new crown pneumonia epidemic on the world has long exceeded the health field. The virus itself and the measures that have to be implemented to prevent the epidemic have plunged the global economy into recession. The United Nations even issued a report saying that the new crown epidemic may cause the world to lose 10 years of development results, and the most vulnerable social groups will be most affected.
So, what about the wealthiest group?
On April 6, Forbes released the 35th “Global Billionaires List”. The data showed that during the epidemic, the wealth of the rich community ushered in unprecedented growth. This time, the number of billionaires on the list reached 2,755, with total assets of 13.1 trillion US dollars, both breaking historical records. Among them, the number of rich people on the list is 660 more than the previous year, and the total assets are more than 8 trillion U.S. dollars, and it is the first time that it has broken the historical mark of 10 trillion U.S. dollars.
Behind the wealth growth of the rich are the soaring stock market and large-scale economic stimulus programs launched by various countries. Take the United States as an example. The Fed’s unprecedented stimulus measures have propped up the stock market and pushed up asset prices. The wealthy who can buy financial assets can continue to maintain their value and increase in value, but not only does the wage growth of the working class fail to keep up with the investment and operating income of the rich. With the growth rate, there is often a dangerous working environment to continue working for the rich.
Regarding this “spectacle”, “Forbes” called it: “the fastest increase in wealth in human history.”
When Citigroup announced its financial report, it said that the company plans to “double its bet on wealth” management business and will focus its energy on international hubs where high-income groups gather: Singapore, Hong Kong, UAE and London. At Bank of America, driven by the strong stock market, the account balance of wealthy customers surged by 31% to a record US$3.5 trillion. Morgan Stanley’s new assets under management have also increased significantly.
Citigroup’s new CEO Jane Fraser told analysts, “I can talk about this for a few hours – I think we are in a very good position in wealth management.” She said that focusing on major markets means “we The capital, investment and other resources of the company can be better deployed to capture opportunities for higher returns in the wealth management field.”
According to the Bloomberg Billionaires Index, the world’s 500 richest individuals increased their wealth by US$1.8 trillion last year, reaching a total of US$7.6 trillion. In the United States, the economic recovery affects the people in an extremely uneven way: rising stocks and housing prices have pushed many Americans to become wealthier, but nearly 10 million people are still unemployed. Some people call it “K-shaped recovery.”
Batchelder, who served in the Obama administration, has long advocated the use of tax laws to reduce income inequality, especially the gap between the rich and the poor between races. She called for a substantial increase in inheritance taxes, and has written articles on wealth taxes for high-net-worth individuals and financial transaction taxes on stocks and bonds.
She and David Kamin, deputy director of the National Economic Council, mentioned possible tax reforms in a 2019 paper entitled “Taxing the Rich: Problems and Options”. In addition to abolishing the “basic incremental” inheritance tax, it also includes taxing the capital gains of wealthy Americans at a higher income tax rate and imposing a minimum tax rate on large companies.
According to people familiar with the matter, according to Biden’s 2020 election policy, part of the tax increase proposals currently planned or under consideration by the White House include raising the corporate tax rate from 21% to 28% and the personal income tax rate for income exceeding $400,000. Increasing and expanding the coverage of inheritance tax will increase the capital gains tax rate for individuals with an annual income of at least $1 million.
Batchelder conducted a study earlier last year. Americans estimated that they would inherit a $764 billion inheritance in 2020, and the average tax payment would only account for 2.1%.
Biden’s White House economic team is determined to honor his campaign promise to increase taxes on the rich, because more and more data show that the wealthy Americans are financially well during the epidemic. Last year, the wealthiest 1% of American households increased their wealth by more than $4 trillion.
Teacher Li Xunlei once analyzed that the root cause of the fiscal problems in the United States is that in the past four decades of globalization, the multiple tax avoidance of multinational corporations and the wealthy has greatly reduced the government’s ability to obtain tax revenue. While multinational corporations and executives are grabbing a lot of benefits in the process of globalization, they reduce taxable income in the home country through complicated related transactions between subsidiaries in various countries, and transfer profits to countries with lower tax rates as much as possible, thereby realizing reasonable tax avoidance . In 2018, the average effective tax rate for the 400 wealthiest households in the United States was 23%, one percentage point lower than the 24.2% for the bottom 50% of households in the United States. In other words, while enjoying the dividends of globalization, the affluent class refuses to bear related responsibilities. The US fiscal problem is also another manifestation of the increasing polarization between rich and poor.
What is the impact on the stock market?
GF Macro’s Zhang Jingjing team previously analyzed that in March, the Biden administration kept revealing the details of infrastructure and tax increase policies? The Biden administration may intend to release risks in US stocks during the year.
Infrastructure and tax increases may end the bull market logic in US stocks after the financial crisis. The financial crisis caused the U.S. real estate bubble to burst. The subsequent low interest rate environment and tax cuts stimulated U.S. stock repurchases and created a U.S. stock technology bull market. The ultra-low interest rates during Trump’s tenure also made U.S. stock valuations continue to refresh and the Nasdaq bubble burst. After the new high. Infrastructure construction will stimulate the real economy, and superimposed real estate is still in an upward cycle. It is expected that the US inflation center will be higher than before the epidemic (2012-2020) in the next 5-8 years, and inflation factors will have a positive impact on risk-free interest rates. Tax increases will weaken corporate profits and repurchase willingness.
In the third quarter, the Fed is likely to cut QE, and then there will be greater risk of US equity adjustment; Biden revealed details of infrastructure and tax increases or intends to release US stock risks during the year. In other words, in the context of high valuations and monetary policy changes, Q3 US stocks inherently have greater risk of adjustment. At present, the Biden administration continues to release details of tax increases and infrastructure policies or deliberately releases negative signals in advance and squeezes out the U.S. stock bubble when the monetary policy is officially turned.
Once the risks of US stocks clear up and regain gains next year, the Democratic Party’s victory in the 2022 midterm elections will also increase. Since the 1980s, U.S. stocks have the highest probability of falling in the first two years of each presidential term. Although there are economic factors, it also shows that the previous presidents were least concerned about the performance of U.S. stocks in the early days of office. On the contrary, the decline can depress the base and deliver better performance in the middle of their administration. Transcript”.
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