Stocks are ending the week roughly flat after seesawing and selling off on capital gains tax fears on Thursday. For those worried that they will be paying higher taxes, rest assured only the very wealthy will be doing so. According to Bloomberg, a top rate of 39.6% would only apply to those with more than $1 million in annual income. Some investors may fear that with higher taxes there will be less investment in the stock market and thus create a market sell-off. Historically, this has not been the case. Reuters notes the following:
Consider that in 1981 the capital gains rate was cut significantly—from 28% to 20%. The S&P 500 fell 22% over the 12 months after the law was enacted. Then in 1987, the rates were changed, back up to 28%. The S&P rose significantly, but then dropped in the 1987 crash. In 1997, the rate was again cut down to 20%. The S&P 500 continued the bull market run it was already in. Then in 2003, the rate was cut again, down to 15%. Stocks dropped sharply in reaction to the announcement, but when the rate cut was actually enacted, stocks had begun a bull run.
At best it is indiscernible what effect capital gains tax has on the stock market. The most important factor remains staying invested for the long-haul and trying to look beyond the noise.