As the Senate nears its vote on taxes, the minutia of the bill will be debated on the Hill with the hopes that some parts of it die before making it to final vote. One such provision is a change to capital gains taxations. Currently, investors can choose which “lots” of stock to take from when they sell. For example, a long time Apple investor may have bought the stock many times over the years with the oldest lots having a cost basis of a few dollars. If they were forced to sell the oldest lots first, an accounting method called First In First Out (FIFO), their capital gains would be enormous. However, if they sell the most recent long-term gains (as they can presently) the story would be much different. This is just one of the myriad changes proposed in the bill.
The US tax code is one of the most complex in the industrialized world and the effects of any changes are incredibly difficult to predict. But what we know for certain is that in the short-term the markets will be thrilled with the changes overall. On a longer time-frame economic implication are less certain, except of course for the massive deficits, which apparently both parties in the US love these days.