Episode Details

In this session, I look at the Biden Administration's proposal to raise capital gains taxes from 23.8% to 43.4% for people who make more than a million dollars in investment income. While that tax hike will affect only a very small proportion of tax payers (0.3%, according to the administration), this is also a group that punches well above its weight when it comes to impact. I look at the history of dividends and capital gains taxes in the US and how returns on stocks, post-investor-taxes, dramatically lag pre-tax returns. I then use a simple valuation framework to examine how investor taxes, and changes in those taxes, affect value. The bottom line is that, if all else is held constant, even this very tightly targeted tax increase will have spillover effects on value, with value declining about 7%. That may be a price that Americans are willing to pay to punish the very rich, but they will not be the only ones feeling the pain.
Blog Post: https://aswathdamodaran.blogspot.com/2021/05/investor-taxes-and-stock-prices.html
Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/CGTaxes.pdf
Spreadsheet to compute value effect: http://www.stern.nyu.edu/~adamodar/pc/blog/TaxEffectonStocks.xlsx
Data:
1. Tax rates on dividends and capital gains in US from 1916 to 2020: http://www.stern.nyu.edu/~adamodar/pc/blog/TaxRatesonDiv&CG.xlsx
2. Pre and Post personal tax returns on stocks: http://www.stern.nyu.edu/~adamodar/pc/blog/HistoricalPostTaxReturns.xlsx

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