Last night, Jeff Gundlach said that capital gains tax rates could be hiked soon as the government attempts to reduce federal debts and deficits.
He warned that such a move would be bad news to high-flying stocks like Apple, which could tumble as investors scramble to book profits ahead of the tax hike.
In a new note to clients, Deutsche Bank’s David Bianco addresses the same theme, noting that higher capital gains taxes have been associated with weak returns in the stock market:
Higher taxes undoubtedly contributed to very poor S&P 500 performance
The long-term capital gains rate climbed from 25% in 1967 (since 1942) to 39.9% in 1977. The 1976 Act also eliminated inherited property basis step ups. Although postponed and ultimately repealed in 1980, seemingly lost inheritance step ups and higher capital gains rates amidst double-digit inflation represented a huge tax hike. This undoubtedly contributed to PE compression and very poor S&P 500 performance from 1968 to 1978.
Here’s the chart from Bianco.
Photo: Deutsche Bank
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