CHART: Higher Capital Gains Tax Rates Are Bad News For Stocks

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 Although postponed and ultimately repealed in 1980, seemingly lost inheritance step ups and higher capital gains rates amidst double-digit inflation represented a huge tax hike.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.

capital gains tax

Photo: Deutsche Bank

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