Some Predict Chance of New Taxes is Low, But There's More That Investors Should Worry About

Source: Wikimedia Commons

Abstract: The Biden Administration is floating the idea of new taxes as a way to pay for a multi-trillion dollar reconciliation bill. Together, these policies could transform the US economy and tax code for years to come.

The Scene:

Washington is racing to pass a reconciliation bill before President Biden heads to Europe for a global summit. The bill will contain billions of dollars worth of spending, on issues ranging from an expanded social safety net to climate change.

Exactly what the final bill will look like is unclear; estimates of its size have changed over time as negotiations between Progressive and Moderate Democrats evolved. What started as a $3.5 trillion plan now has a tiny chance of being larger than $2.5 trillion. The timeline is also unfavorable: it’s unlikely that a reconciliation bill greater than $1.5 trillion gets passed before November 14.

Much of the debate around the reconciliation bill surrounds how to pay for the new spending. Democrats have alternately proposed raising the income tax, the capital gains tax, and the corporate tax, and have also suggested new taxes on unrealized capital gains to apply to the ultrawealthy. Republicans, and some moderate Democrats, have pushed back against these proposals.

For the entire month of September, there were better than even chances that the corporate tax would be raised, but this probability plummeted to 7% in late October after increased opposition. A similar thing happened with the capital gains tax, where the probability of an increase was above 50% for most of October, but fell in the past week to just below 15%.

The new “Billionaires Tax” that would tax the unrealized capital gains of the super wealthy, is also unlikely to pass.

How it Could Affect Your Portfolio

An increase in the capital gains or corporate taxes would reduce the value of investor portfolios through its effect on the stock market. The size of the reconciliation bill could also affect different industries, from retailers to electric vehicle manufacturers, as welfare benefits and climate change investments are first on the chopping block.

Traders are forecasting that the tax increases won’t come, and that the reconciliation bill will be trimmed, but those predictions could change as new information comes out of Washington.

The only place for investors to stay up to date with these forecasts is on Kalshi, the first federally regulated market for event contracts. Investors buy “yes” or “no” on a market asking “Will a bill imposing a tax on wealth or unrealized capital gains become law before December 20, 2021?”, and they make a return based on whether their trade was correct.

Many investors in the stock market use Kalshi to make decisions about their portfolio, because the forecasts on the site give them more information about what will happen in the future.

For example, traders can make intelligent decisions based on an accurate forecast of whether the corporate tax will increase, instead of just guessing based on the news.

Kalshi has markets for a wide variety of events, providing forecasts for future levels of inflation, unemployment, and the vaccination rate. The markets provide investors with much more information about the future than they’ve ever had, giving them information about how to change their portfolio to optimize performance.

Incorporating Kalshi’s event contracts into your portfolio is extremely useful and can be done at kalshi.com.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. The content was purely for informational purposes only and not intended to be investing advice.