North American stock markets fall on report of near doubling of U.S. capital gains

TORONTO — North American stock markets moved lower Thursday on a report that U.S. President Joe Biden is planning to nearly double the capital gains tax on wealthier Americans.

Markets initially welcomed lower unemployment claims and good earnings results, but fell around 1 p.m. after Bloomberg reported that investors earning US$1 million or more would have to pay a 39.6 per cent tax rate on any capital gains, nearly double the current rate for Americans in that income bracket.

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A separate surtax on investment income could boost the overall federal tax rate for wealthy investors as high as 43.3 per cent, the report said, citing unnamed people familiar with the proposal.

"Almost immediately when that report came out the market fell," said Michael Currie, vice-president and investment adviser at TD Wealth.

"If it's true, that will certainly be the big story of the day, if not the month."

Biden has also proposed raising corporate taxes to fund his US$2.3-billion infrastructure program.

While Biden campaigned on raising taxes, Currie said few people thought he would propose such a large increase in the capital gains tax, which would affect investors who netted big gains as the stock market climbed to record highs after plunging as a result of COVID-19.

Many investors appeared to have sold on the tax hike rumour, preferring to pay the lower rate.

"We've had a nice bull market here so there's a lot of capital gains unrealized as yet, so I think any investor would be almost crazy not to be selling at the lower rate if you could," Currie said in an interview.

The tax would affect sectors like technology that have surged during the pandemic. But stock markets have climbed to highs, which means other investors would also be affected.

"Anybody who's been investing for a decent length of time now, it's a pretty safe bet you're going to have some sizable gains in there."

Currie said the tax hike is negative for stock markets in the short and long term, but it will be difficult to quantify the possible hit until the details are released.

The S&P/TSX composite index closed down 111.61 points to 19,031.64.

In New York, the Dow Jones industrial average lost 321.41 points at 33,815.90. The S&P 500 index was down 38.44 points at 4,134.98, while the Nasdaq composite was down 131.81 points at 13,818.41.

Industrials and financials were the lone sectors on the TSX to gain some ground on Thursday.

Industrials increased 0.65 per cent on a 4.4 per cent lift for shares of Air Canada and a 3.4 per cent move higher for Canadian Pacific Railway after it posted strong quarterly results.

The remaining nine major sectors were lower in a broad-based decline led by materials, technology, energy and health care.

Materials and technology each decreased 1.4 per cent. The sector that includes miners, forestry and fertilizer companies dipped as gold prices decreased with Turquoise Hill Resources Ltd. down seven per cent and Silvercrest Metals Inc. off 5.5 per cent.

The June gold contract was down US$11.10 at US$1,782.00 an ounce and the May copper contract was down 0.6 of a cent at US$4.27 a pound.

Shopify Inc. lost 4.2 per cent to push the tech sector down.

Energy and health care each dropped about one percentage point. Energy fell despite a gain in crude oil prices with shares of Imperial Oil decreasing 2.1 per cent.

The June crude oil contract was up eight cents at US$61.43 per barrel and the June natural gas contract was up 5.5 cents at US$2.83 per mmBTU.

The Canadian dollar traded for 80.00 cents US, compared with 79.78 cents on Wednesday.

— With files from The Associated Press.

This report by The Canadian Press was first published April 22, 2021.

Companies in this story: (TSX:SHOP, TSX:TRQ, TSX:SIL, TSX:IMO, TSX:AC, TSX:CP, TSX:GSPTSE, TSX:CADUSD=X)

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