Pimco’s Gross: Tax Hikes on Investment Income Could Bruise Stock Prices

Wednesday, 07 Nov 2012 12:17 PM

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President Barack Obama’s re-election could herald in the arrival of tax hikes on investment income, such as on dividends and capital gains, and should that come to pass, expect stocks to go down in value, said Bill Gross, founder of fund giant Pimco.

Taxes are due to rise at the end of this year when the Bush-era tax cuts and other benefits expire.

Meanwhile, the president’s healthcare overhaul bill calls for tax hikes on investment income as well.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Now that the elections are over, Republicans and Democrats will work to address expiring Bush-era tax cuts since they coincide with inbound cuts to government spending agreed up during the 2011 debt-ceiling deal, a combination known as a fiscal cliff that could send the country into a recession next year if left unchecked by Congress.

Expect a compromise to involve tax hikes on investment income to some degree, with the aim of increasing government revenue, which will come at the expense of stock prices.

“What we have to look forward to, though, in terms of investments is if the fiscal cliff includes higher taxes, which is the key,” Gross told CNBC.

“The point being for stocks is that if dividend and capital gains tax rates go up, then stocks are worth less, perhaps 5 to 10 percent less at least,” Gross added.

One ratings agency was quick to point out that Obama will enjoy no honeymoon at all due to the proximity of the fiscal cliff.

“[F]ailure to avoid the fiscal cliff and raise the debt ceiling in a timely manner as well as securing agreement on credible deficit reduction, would likely result in a rating downgrade in 2013,” Fitch analysts wrote in wake of the president’s victory.

“Fitch estimates that the fiscal cliff would tip the U.S. economy into an unnecessary and avoidable recession and result in an increase in the unemployment rate to above 10 percent in 2013.”

The United States still enjoys an AAA rating with Fitch.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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