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Thursday, April 29, 2010

WSJ: Dividend Tax to Increase From 15% to 43.4%

Wall Street Journal editorial, The Dividend Tax Bill Arrives: Democrats Would Nearly Triple the Top Rate:

As the big tax increase day of January 1, 2011 approaches, the Democrats running Congress are beginning to lay out their priorities. Get ready for bigger rate increases than previously advertised.

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

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Comments

Good. This is returning the burden to those who live on unearned income - as Adam Smith advocated.

Posted by: Stephen Burgoyne Coulson | Apr 29, 2010 2:29:25 PM

What is the tax rate on capital gains? If the tax rate on dividends exceeds that of capital gains, as has been the case until relatively recently, does this not distort the decision process of how to return value to shareholders?
Currently they have 3 ways:
Stock buybacks, raising the value of shares
Appreciation of stock value, for capital gains
Direct dividend
There's some evidence that dividend paying companies are managed more responsibly---perhaps it's the knowledge that a certain conservatism is required because lowering your dividend will really hammer your share price. So this could result in more corporate misbehavior, by distorting their incentives.

On another question---is there any good reason why we shouldn't just allow companies to expense dividend payments (like they do salaries and the like) and just tax dividend payments like any other regular income (e.g., interest)?

Posted by: David | Apr 29, 2010 5:05:21 PM

Good. I say we stop taxing labor and tax only capital going forward. And yes I know labor pays capital taxes and vice versa but let's give it a shot any way.

Posted by: anon | Apr 29, 2010 5:08:00 PM

google what happened in the 30's when taxes were this high.. the answer lies there. I will be Real Estate comes back in a big way because of it's inherent nature of a tax shelter

Posted by: sam | Apr 29, 2010 7:02:45 PM

unearned income? riiiiiiiight. This country is a joke right now.

Posted by: anon | Apr 29, 2010 9:09:58 PM

Message understood - don't buy stocks.

Posted by: Holocaust Gaza | Apr 29, 2010 11:12:02 PM

or google what happened in 2009 after GW lowered taxes. not that either statement is probative of anything.

Posted by: anon | Apr 30, 2010 7:18:08 AM

What folks don't seem to understand is there is not enough money in circulation to pay off the national debt. This isn't about balancing the books, it's about transfering the wealth to the global elite. It's about control not money.

Posted by: robertsgt40 | Apr 30, 2010 8:57:28 AM

Google: Chicago Climate Change (CCX) start getting jail cells ready!!!

Posted by: Thomcat | Apr 30, 2010 10:29:40 AM