Tags: fiscal | cliff | tax | hike

Wealthy Unload Assets Amid Expectation Of Higher Taxes

Tuesday, 13 Nov 2012 01:47 PM

By Stephen Feller

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It’s a good time to be a buyer as many wealthy Americans look to unload stocks, homes, and businesses ahead of higher taxes and parts of the impending fiscal cliff.

If taxes on capital gains, dividends, and estates go up, and if the Bush-era tax cuts are also not extended for the higher-level earners, it’s possible that tax revenue could also go down for the first year or two of the proposed tax hikes.

“Under almost any scenario, it makes sense to take the gains this year,” Gregory Curtis, chairman and managing director of Greycourt & Co, told CNBC. “Clients aren’t selling willy nilly. But if they can and they have a huge gain, they’re selling now.”

Fear is driving much of the sales because even if the fiscal cliff does not happen, taxes are likely to go up — driving analysts and advisors to tell clients to assume that whatever happens will cost them money.

"We're advising our clients to assume the changes will go into effect on Jan. 1," Aaron Gurwitz, chief investment officer of Barclays' wealth- and investment-management division, told the Wall Street Journal.

Under the proposals being discussed as part of a deal to avoid the fiscal cliff, capital gains taxes would increase from 15 to 20 percent, taxes on dividends could go from 15 to as high as 43 percent, and the estate tax could move from 35 percent on estates of $5 million or more to 55 percent on estates starting at $1 million.

In addition to decreasing tax revenue in the immediate future, the sell-off could hurt stock and asset prices, and in turn have a negative effect on the economy.

Roberton Williams of the Tax Policy Center said that while there are a lot of moving parts to the American economy, it’s worth considering that when President Ronald Reagan increased capital gains taxes in 1987, revenue from the increase doubled in 1986 but dropped by half in 1987 when the hike went into effect.

“The government may come out ahead this year, but lower the next year,” Williams said. “Taxes are only one factor when it comes to decisions to gains. But they are certainly a factor.”

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