The Dividend Tax bill arrives

[SandEagle]

http://online.wsj.com/article/SB100...81173165478.html?mod=WSJ_hpp_sections_opinion

"Last week the Senate Budget Committee passed a fiscal 2011 budget resolution that includes an increase in the top tax rate on dividends to 39.6% from the current 15%—a 164% increase. This blows past the 20% rate that President Obama proposed in his 2011 budget and which his economic advisers promised on these pages in 2008.


(See "The Obama Tax Plan," August 14, 2008, by Jason Furman and Austan Goolsbee: "The tax rate on dividends would also be 20% for families making more than $250,000, rather than returning to the ordinary income rate.")
And that's only for starters. The recent health-care bill includes a 3.8% surcharge on all investment income, including dividends, beginning in 2013.

This would nearly triple the top dividend rate to 43.4% in Mr. Obama's four years as President. We suppose the White House would call this another great victory for income equality


Just when you thought they were running out of ways to tax the hell out of us....

 

[2Xtreme21]

Man and some people were naive enough to think all that money we've needlessly spent in the last 8 or so years just grew on trees or something!

 

[DaveSimmons]

WSJ requires a subscription -- is this rate for those earning $251,000 or $251 million? That does make a difference.

 

[palehorse]

Barack "Robin Hood" Obama FTW!

 

[Brainonska511]

Good; it's about freakin time. The super-rich have been skirting by for years on their ridiculously low passive-income tax rates.

 

[Schadenfroh]

That is a completely unreasonable increase.

 

[Ronstang]

That is a completely unreasonable increase.

There is nothing reasonable about Democrats anymore, especially the current administration. They have always punished the taxpayers for their mistakes but they are now taking it to new levels.

 

[Patranus]

What a way to stop investment and innovation.

Perfect timing

This is one thing Bill Clinton understood when working with the GOP congress.

 

[DaveSimmons]

> That is a completely unreasonable increase.

Even on incomes of $251 million?

So far a Google search isn't turning up anything except bloggers quoting the free first paragraph of the WSJ, without anyone giving the rest of the story.

The only free story with details of the budget resolution doesn't mention this proposal at all, odd:
http://ria.thomsonreuters.com/taxwatch/default.asp

* Permanent extension of the 2001 and 2003 income tax provisions for couples with incomes below $250,000 and singles with income below $200,000. These include: the 10% bracket; the child tax credit; marriage penalty relief; the 25% and 28% brackets, and part of the 33% bracket.
* Continuation of the maximum 15% tax rate on capital gains and qualified dividends for couples with incomes below $250,000 and singles with income below $200,000.
* Requiring employers that do not offer 401(k)s to offer automatic enrollment in IRAs, allowing employees to contribute to IRAs through payroll tax deductions, and doubling the tax credit for small employer retirement plan start up costs.
* Continuation of "provisions that benefit families," such as the adoption credit, the dependent care credit, the employer-provided child-care credit, the student loan interest deduction, and the exclusion for employer-provided education assistance.
* Two years of AMT relief (for 2010 and 2011).
* Keeping the 2009 estate tax levels for 2010 and 2011, with an exemption of $3.5 million ($7 million for a couple) indexed for inflation, and a top rate of 45%.
* Extending through 2011 tax provisions that expired in 2009 or will expire at the end of 2010, such as the R&E tax credit, the deduction for state and local sales taxes, and a range of energy incentives. The American Opportunity Credit also would be extended.
* Providing for small business tax relief, including permanent extension of Code Sec. 179 expensing at the $125,000 level (it's not clear if this figure would be indexed for inflation), elimination of capital gains tax on certain small business stock held for more than five years, and elimination of the tax on personal use of business cell phones and similar communications devices (for details of a pending bill dealing with cell phones, see Weekly Alert -- 4/22/2010).

 

[heyheybooboo]

Oh, Dang.

Certain qualified dividends for the wealthy are taxed as conventional income (as opposed to qualified dividends at 5% or 15%). That just happened to be the rate before the Bush/GOP tax cuts (that are set to expire after December 31, 2010).

There goes my tax shelter.

Oh, darn, again. The same case applies to cap gains, as they are reverting from the Bush/GOP tax rates to the previous rate, again after December 31, 2010.

I'm sure everyone remembers what the Federal Budget was like before the Bush/GOP Tax Cuts?





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[Patranus]

Oh, Dang.

Certain qualified dividends for the wealthy are taxed as conventional income (as opposed to qualified dividends at 5% or 15%). That just happened to be the rate before the Bush/GOP tax cuts (that are set to expire after December 31, 2010).

There goes my tax shelter.

Oh, darn, again. The same case applies to cap gains, as they are reverting from the Bush/GOP tax rates to the previous rate, again after December 31, 2010.

I'm sure everyone remembers what the Federal Budget was like before the Bush/GOP Tax Cuts?





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And I am sure that if you understood simple math, tax cuts do not directly effect the deficit.

 

[Zorba]

I never understood why Dividend were taxed any different than interest from a bank account. It should be taxed at your marginal rate.

 

[Patranus]

I never understood why Dividend were taxed any different than interest from a bank account. It should be taxed at your marginal rate.

Because it taxes investment and innovation, things that should be encouraged.

(Even Bill Clinton understood this)

 

[Zorba]

Because it taxes investment and innovation, things that should be encouraged.

(Even Bill Clinton understood this)

So does taxing bank interest and bond interest.

 

[nonlnear]

Sounds like the Democrats just don't want to collect any dividend taxes at all! Not only that but they sure do seem to love destabilizing markets in earth shattering ways...

The article is drastically underestimating the taxes collected on dividends at these rates. After all dividends have already received the corporate income tax haircut. This will effectively shut down all dividends in favor of capital gains, leading to a new wave of highly unstable markets. Dividends are paid out by companies who have more money than their strategic goals require. Forcing them to keep it by using misguided tax policies is a very very bad idea.

Now if they repealed the corporate income tax on dividends paid, that would go a long way towards correcting this. Then I actually wouldn't mind if they made the rate equal to regular income, or eliminated the class of dividend income altogether. Making the rate the same as income while keeping the corporate income tax on dividends is terribly misguided.

I know this will make me take my entire income as a paycheck instead of dividends. I think I'll have a few company "meetings" in Hawaii just to spite Congress if this passes. If they take away preferential dividend taxes, there's always good ol' reimbursable expenses...

 

[nonlnear]

I never understood why Dividend were taxed any different than interest from a bank account. It should be taxed at your marginal rate.

One reason is that stock markets are more stable when companies have a greater incentive to pay dividends than to give returns as capital gains. When a company has money that it doesn't need to fulfill its strategic goals, it has three choices: keep it laying around for a rainy day (doing too much of this as a public company maeks you a takeover target), pay it out as dividends, making investors happy (and thus keeping them happy with the current board members), or invest it in a random company that you don't really want in the first place (this will pass the value of the acquisition on to the stockholders in the form of capital gains, but it could destabilize your business down the road). Option 3 is what policy makers should be really REALLY scared of, but it is what they implicitly encourage whenever dividend tax rates are higher than capital gains rates.

I actually agree that dividend rates should be taxed at (or near) the marginal rate. The thing is in order to see what the actual rate is, you have to consider that the dividend has already been taxed as corporate income before it gets taxed as dividend income. The solution then is to either reduce the dividend rate so that the effective tax rate is equal to (or lower than) the capital gains rate (which didn't get the corporate income tax haircut before being passed on to the investor), or eliminate corporate income taxes on dividends that are paid. Unfortunately neither option is palatable to the left politically because certain people are rabidly devoted to the notion that all cuts in corporate income taxes are just "gifts" to corporations.

There is another good reason to split the taxation into "corporate income taxes + a reduced dividend tax rate". That being that taking a portion of the tax bill from the company means that foreign investors pay taxes on that piece of dividend. Thus keeping dividend taxes low is actually a way of protecting domestic ownership of domestic firms. But you'd have a hard time convincing most Democrats of that. It doesn't fit with the talking points.

 

[ProfJohn]

Man and some people were naive enough to think all that money we've needlessly spent in the last 8 or so years just grew on trees or something!

News flash! Obama is on track to spend more money during his first four years than Bush did during his entire eight year term.

Your "but Bush" point might have made sense if Obama was working to cut spending, but he is growing spending faster than Bush could have even imagined. Our budget has grown by almost 25% in just two years.

 

[Tom]

Because it taxes investment and innovation, things that should be encouraged.

(Even Bill Clinton understood this)

income tax taxes work, you think work should be encouraged ?

the whole argument for lower tax rates for investing is a sham. People will invest if they have money, what else are they going to do with it ?

 

[CPA]

Good; it's about freakin time. The super-rich have been skirting by for years on their ridiculously low passive-income tax rates.

Those damn, mean ol' rich people /shakes fist

 

[Slew Foot]

Oh, Dang.

Certain qualified dividends for the wealthy are taxed as conventional income (as opposed to qualified dividends at 5% or 15%). That just happened to be the rate before the Bush/GOP tax cuts (that are set to expire after December 31, 2010).

There goes my tax shelter.

Oh, darn, again. The same case applies to cap gains, as they are reverting from the Bush/GOP tax rates to the previous rate, again after December 31, 2010.

I'm sure everyone remembers what the Federal Budget was like before the Bush/GOP Tax Cuts?





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Yeah that internet bubble was great

 

[Slew Foot]

Ive always said that all income should be taxed at the same rate. Just that taxes overall should be be drastically lowered and all the lazy/stupid fucks who want to leech off the system can go fuck themselves. Yes, that includes welfare queens and dumbshit bankers.

 

[Throckmorton]

Why does the right have a problem with removing the special treatment for dividends?

 

[ProfJohn]

Why does the right have a problem with removing the special treatment for dividends?

The law of unintended consequences.

i.e. everyone thought that getting more people to buy houses was a great idea, and then the market crashed.... oops.

 

[blackangst1]

So does taxing bank interest and bond interest.

Sorry, but money in a bank != investment.

 

[theeedude]

That is long overdue. There is absolutely no reason why income from doing nothing should be taxed at a lower rate than income from hard work.