If elected, Democratic presidential candidate Barack Obama plans to increase the capital gains tax between five and 10 percentage points, from its current rate of 15%. The effect of Obama’s possible candidacy, along with his tax program, has already sent concern throughout the financial world, the Newark Star-Ledger reports. Some financial planners are advising investors to take advantage of the current lower rates and to drop some mutual funds and stocks.

 

If investors heed these precautions, a mass stock selloff may occur, further hurting the markets.

 

“Quite simply, any increase in taxes on investment activities is certainly a negative for the investor community and a negative for capital raising and the financial markets,” said David Dietze, president and chief investment strategist for Point View Financial Services.

 

Others have differing views on the effects of a raised capital gains tax. Jeffrey Hirsch, editor of Stock Traders Almanac investment guide, said a stock selloff, in the long run, would increase federal revenue and decrease the federal budget deficit, boosting the economy. “The capital gains tax has been higher before, and the market has gone up,” Hirsch said.

 

Even if Obama is not elected, the current law will expire and the tax will automatically increase in 2011 to 20%.

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