With a compromise on the so-called “fiscal cliff” up in the air, investors are showing signs of worry. According to CNBC, many are working to sell off assets to avoid the coming hikes in the capital gains tax that will come at the beginning of the year:
For many of the wealthy, 2012 is becoming a good year to sell.
They’re worried about the “fiscal cliff,” which is when tax cuts expire and spending cuts are set to go into effect at the end of the year.
Fearing an increase in capital gains and dividend taxes, many of the rich are unloading stocks, businesses and homes before the end of the year.
Wealth advisors say that with capital-gains taxes potentially going to 25 percent from 15 percent, and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes.
If the Bush-era tax cuts expire, taxes on capital gains would revert back to its previous rate of 20 percent from its current 15 percent. Another 5 percent may be added from health-care levies and changes in itemized deductions, bringing the rate to 25 percent for many high earners.
Taxes on dividends could go from 15 percent to over 43 percent. And the estate tax could go from 35 percent on estates worth more than $5 million to 55 percent on estates over $1 million.
CNBC also notes that many entrepreneurs are selling off their businesses now hoping to avoid potential taxes hikes next year. Interestingly, President Barack Obama’s tax proposal, if passed, would have raised at least of these same taxes. For example, the capital gains tax would have risen to 20% and the estate tax would jump to 45% under Obama’s plan. These hikes would be coupled with other proposed increases in income taxes rates, back to Clinton-era levels, for individuals earning over $200,000 and families making over $250,000.
This sell off was to be expected, even without the “fiscal cliff.” But it’s having an affect that is both hurting the stock market, coupled with fears of Congress not reaching an agreement with the White House — which is looking less likely by the day, and shorting the federal government of money that would come at the beginning of next year. Not there’s a problem with that. The less money the government has (or spends), the better.