Threats of higher taxes could trigger major selling of stocks by the wealthy: strategist

With fears over higher taxes from the Biden administration in order to pay for a sweeping infrastructure bill only growing, some in the financial services community are already starting to voice concern on the impact to the stock market.

“It is a big topic of conversation. So your average high-net-worth investor is looking at tax rates and the conversation on tax rates. It’s a big driver of how they plan,” said Andrew Mies, 6 Meridian founder and chief investment officer, on Yahoo Finance Live.

Remember, then 2020 presidential candidate Biden put forth reversing half of former President Donald Trump’s signature tax cuts, lifting the statutory rate to 28%. Numerous other tax hikes from the now Biden administration could also be in the cards, as Stifel’s Chief Washington policy strategist Brian Gardner recently told Yahoo Finance live.

Treasury Secretary Janet Yellen fanned the flames on the tax debate during testimony to lawmakers this week. “We do need to raise revenues in a fair way to support the spending that this economy needs to be competitive and productive,” Yellen said.

Mies thinks the selling of stocks could happen before any increase in taxes.

“The first one you look at is the move in individual rates. That’s not hugely significant going from 37% to 39%. But the move in the corporate tax rate and the long-term capital gains tax rate, if that were to move from the low 20s currently to the marginal tax rate, that would be a significant driver of investor behavior and I think that you could see a lot of people starting anticipatory selling to lock in things they feel are pretty fully valued,” Mies explained.

Some of that tax related selling may be playing out in drips and drabs right now.

As concerns on future tax rates have intensified in March, the Nasdaq Composite has dropped about 5%. High-flying tech stocks such as Tesla and Salesforce have lost even more amidst the pullback — each have shed nearly 15%. Meanwhile, the S&P 500 is lower by 1% in the last month.

“Taxes…everyone is talking about that as well,” quipped EvercoreISI senior managing director Dennis DeBusschere in a note to clients on Thursday.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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