Why talk of a capital-gains tax hike isn’t keeping the stock market down

Why talk of a capital-gains tax hike isn’t keeping the stock market down

Blink and you might have missed the stock-market selloff blamed on the White House's purported plans to hike the capital-gains tax rate on America's wealthiest investors.

After falling more than 320 points, or 0.9%, for its biggest one-day drop since early March, the Dow Jones Industrial Average

DJIA, +0.67%

on Friday took back a chunk of those losses. The S&P 500

SPX, +1.09%,

which also tumbled 0.9% on Thursday, ended with a gain of 1.1% after briefly trading above its its record closing high from April 16.

The drop, which came Thursday afternoon, was widely blamed on news reports that President Joe Biden would propose hiking the capital-gains tax rate on people earning more than $1 million a year from 20% to 39.6%. Combined with an existing surcharge, high income individuals would face a capital-gains rate of as high as 43.4%, Bloomberg noted.

Cue the number crunchers, who were quick to point out an important fact about changes in the capital-gains tax rate: history shows they don't have much, if any, effect on stock-market returns.

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