Small Caps Could Be Badly Hit by Biden’s Plan to Tax Unsold Assets

In case you missed it, a $5 trillion tax hike looms over American households and businesses in President Joe Biden’s latest budget proposal, which would include a 25% annual minimum tax on unrealized capital gains for individuals with incomes and assets exceeding $100 million.

To be clear, I don’t believe a deeply divided Congress would be able to find the votes necessary to approve this policy, but it’s crucial that people are at least aware of the potential ramifications.The idea of taxing unrealized capital gains—increases in the value of an asset like property or stocks that haven't been sold yet—is not only unprecedented but fundamentally flawed.

You can see how this policy might not go over well with the investment community. As influential entrepreneur Anthony Pompliano tweeted last week, “If they want to collect unrealized gains, we’re going to need refunds on unrealized losses.”Scott Melker, host of the popular Wolf of All Streets podcast, commented that wealthy investors would simply employ a special strategy to minimize the impact of this additional tax burden.

Knowing that their unrealized gains will be taxed, investors would be less inclined to invest in growth-oriented businesses, which tend to see greater swings in valuation year-over-year than larger, more established companies.found that Americans reject this policy by a three-to-one margin, including a significant 76% of independent voters. This sentiment stems from a fundamental belief in economic liberty and the principle that a gain is not truly a gain until it is realized .

I often say that money tends to flow where it’s respected the most, and this trend underscores that sentiment.This is all set against a backdrop of rising Treasury yields as inflation concerns persist and doubts grow that the Federal Reserve will be able to lower rates this year.

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