Posted September 24, 2021
By Aaron Gentzler
ETF Tax: A Pro Discusses the Cons
One week ago, we weighed the pro(s) and cons of a tax proposal from Democrats in Congress. We summed up the tax proposal -- aimed squarely at ETFs -- saying it would milk middle class investors.
This week, our retirement specialist Zach Scheidt weighs in, and he submits the tax proposal “could hit your retirement savings hard over the next few years.
“Personally, I think it's a bad idea,” he continues. And here’s why…
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Your Rundown for Friday, Sept. 24, 2021...
“Politicians are scrambling to find any cash they can get their hands on to pay for reckless spending,” says Zach. “And they're trying to convince you that it's ok because these new taxes will only hurt the rich.
“But let's take a look at what actually happens and who is really affected.
“ETFs (or Exchange Traded Funds) give investors like you and me the chance to diversify into many different areas of the market by purchasing one single fund,” he says. For example, the SPDR S&P 500 ETF (SPY) closely tracks the S&P 500 index.
“So by purchasing SPY in your brokerage account, you essentially get a small piece of all 500 stocks in the S&P 500.
“That's a great advantage to smaller investors who don't have enough money to buy a little bit of all these different companies,” Zach notes.
“For years, ETF managers have been allowed to move capital out of one position and into another similar position without triggering a tax liability,” he explains. “This allows the ETF to continually rebalance its investments so that its performance matches the S&P 500.
“Taxes are then paid by individual investors whenever they sell the ETF shares for a gain.
“But now, Congress wants to tax the day-to-day buy and sell transactions that these ETFs make — triggering more short-term gains that will typically be taxed at higher rates.”
Zach remonstrates: “This totally defeats the purpose of buying an ETF and investing in the market for a long period of time, the way most middle-class Americans invest in these financial tools.
“Democrats have gone on record saying that this will only hurt the rich because they don't believe most middle-class investors actually hold ETFs for long periods of time.” Which is BS…
“Middle-class investors are exactly the kind of investors who will be hurt by this!”
While wealthy investors can afford a stable of wealth managers to avoid tax liabilities, slipping through every available loophole, “mom-and-pop ETF investors will wind up footing the bill for this new tax,” Zach says.
“But there's a silver lining with this new tax on investors,” he says.
How’s that for a cliffhanger? We’ll hear more about this “silver lining” on Monday…
Market Rundown for Friday, Sept. 24, 2021
S&P 500 futures are down 24 points to 4,410.
Oil’s sunk 0.30% to $73.09 for a barrel of West Texas crude.
Likewise, gold’s down 0.30% to $1,744.80 per ounce.
And Bitcoin’s way down: 8% at the time of writing to $41,082.38.
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You all have a great weekend… We’ll be back with more on Monday.
For the Rundown,
Editor, The Rundown