CNBC Pro

History shows the stock market doesn't like higher taxes

A general view of the U.S. Capitol in Washington, U.S., April 22, 2021.
Erin Scott | Reuters

When Washington raises both corporate and individual tax rates, stocks typically underperform in the first year and sell off in the second year, according to BTIG.

President Joe Biden this week is expected to propose raising individual taxes for the highest earners to 39.6% and capital gains taxes for those earning over $1 million to as high as 43.4%. That comes on top of his plan to raise corporate taxes to 28% from 21%, proposed to pay for infrastructure spending.

"Everyone says raising the capital gains tax is not a big deal for markets, and it's ludicrous to think that," said Julian Emanuel, head of equity and derivatives strategy at BTIG.

Emanuel studied the impact on stocks when both the individual and corporate tax rates were hiked. He notes there were some stinging examples in years when capital gains rose.

More In Pro Insight

VIDEO05:15
CNBC ProTwitter, Meta, and Qualcomm are some of today's top stock picks for investors: Pro Market Movers June 24
CNBC Pro'Strong growth ahead': Bank names its top EV battery stocks, giving one over 60% upside
watch now
VIDEO10:45
CNBC ProTesla, Microsoft, and FedEx are some of today's top stock picks for investors: Pro Market Movers June 23