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Market-Based Solutions to Vital Economic Issues
Research
May 12, 2021

What to do if Biden raises capital tax rate

Abstract

Everyone is freaking out about potential increases in capital gains taxes. If I had a nickel for every time someone asked me if they should sell all their gains and take advantage of the low rate, I would have, by my accounting, about 85 cents (which is a lot – how often are you asked the same question 17 times?).

For example, I recently got a call from a friend. She had bought a stock for $150,000 that was now worth $200,000. She knows President Biden wants to increase the capital gains tax, and hears that all the smart folks are selling their capital gains now to take advantage of the lower tax rate. She asked me what she should do. Sell now, to lock in that sweet lower capital gains tax rate, or sell later, and like a fool, pay a higher rate?

It is true that President Joe Biden has proposed increasing the capital gains tax, and it is very reasonable to think about how to respond to these potential rate increases. Indeed, in classes I teach to undergraduates and graduate students at the University of North Carolina Kenan-Flagler Business School, I mention that selling ahead of a capital gains tax rate increase might be a smart move. But when is it?


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