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.