Obama proposes dividend tax rate of almost 45%?

http://online.wsj.com/article/SB1000...LEFTTopStories

Obama's Dividend Assault
A plan to triple the tax rate would hurt all shareholders.

President Obama's 2013 budget is the gift that keeps on giving—to government. One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets.

Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today's 15% rate.

Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.

In previous budgets, Mr. Obama proposed an increase to 23.8% on both dividends and capital gains. That's roughly a 60% increase in the tax on investments, but at least it would maintain parity between taxes on capital gains and dividends, a principle established as part of George W. Bush's 2003 tax cut.

With the same rate on both forms of income, the tax code doesn't bias corporate decisions on whether to retain and reinvest profits (and allow the earnings to be capitalized into the stock price), or distribute the money as dividends at the time they are earned.

Of course, the White House wants everyone to know that this new rate would apply only to those filthy rich individuals who make $200,000 a year, or $250,000 if you're a greedy couple. We're all supposed to believe that no one would be hurt other than rich folks who can afford it.

The truth is that the plan gives new meaning to the term collateral damage, because shareholders of all incomes will share the pain. Here's why. Historical experience indicates that corporate dividend payouts are highly sensitive to the dividend tax. Dividends fell out of favor in the 1990s when the dividend tax rate was roughly twice the rate of capital gains.

When the rate fell to 15% on January 1, 2003, dividends reported on tax returns nearly doubled to $196 billion from $103 billion the year before the tax cut. By 2006 dividend income had grown to nearly $337 billion, more than three times the pre-tax cut level. The nearby chart shows the trend.

Shortly after the rate cut, Microsoft, which had never paid a dividend, distributed $32 billion of its retained earnings in a special dividend of $3 per share. According to a Cato Institute study, 22 S&P 500 companies that didn't pay dividends before the tax cut began paying them in 2003 and 2004.

As former Citigroup CEO Sandy Weill explained at the time: "The recent change in the tax law levels the playing field between dividends and share repurchases as a means to return capital to shareholders. This substantial increase in our dividend will be part of our effort to reallocate capital to dividends and reduce share repurchases."

And that's what happened. An American Economic Association study by University of California at Berkeley economists Raj Chetty and Emmanuel Saez examined dividend payouts by firms and concluded that "the tax reform played a significant role in the [2003 and 2004] increase in dividend payouts." They also found that the incentive for firms to pay dividends rather than sit on cash helped "reshuffle" capital from lower growth firms to "ventures with greater expected value," thus increasing capital-market efficiency.

If you reverse the policy, you reverse the incentives. The tripling of the dividend tax will have a dampening effect on these payments.

Who would get hurt? IRS data show that retirees and near-retirees who depend on dividend income would be hit especially hard. Almost three of four dividend payments go to those over the age of 55, and more than half go to those older than 65, according to IRS data.

But all American shareholders would lose. Higher dividend and capital gains taxes make stocks less valuable. A share of stock is worth the discounted present value of the future earnings stream after taxes. Stock prices would fall over time to adjust to the new after-tax rate of return. And if investors become convinced later this year that dividend and capital gains taxes are going way up on January 1, some investors are likely to sell shares ahead of paying these higher rates.

The question is how this helps anyone. According to the Investment Company Institute, about 51% of adults own stock directly or through mutual funds, which is more than 100 million shareholders. Tens of millions more own stocks through pension funds. Why would the White House endorse a policy that will make these households poorer?

Seldom has there been a clearer example of a policy that is supposed to soak the rich but will drench almost all American families.

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So assuming a maximum 35% corporate tax rate

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So assuming imaginary numbers....Obama bad!

This ''theory'' sounds like the reverse of 'Trickle down economics'

Republicans failed in that regard & will once again fail in this one.



Republicans, we get it. Taxing the wealthy & corporations is bad because <insert imaginary trickle down logic>

This is not trickle down theory.

This is pure trickle up theory from the middle class to government.

Stock is valued on annual dividend plus growth potential.

A lot of retired people make retirement investments based on anticipated dividend income.

Cut that, and they not only lose the dividend income but the value of their stock drops too because it is not bringing the same return.

The little guy gets screwed again.

"Make retirement investments''

Investments are financial gambles. Sounds like capitalistic gambles. You gamble and sometimes you lose. Right Republicans?

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Originally Posted by NewcastleKEG

"Make retirement investments''

Investments are financial gambles. Sounds like capitalistic gambles. You gamble and sometimes you lose. Right Republicans?

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When the house sets the vig too high people quit gambling.

Pretty simple, really.

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Originally Posted by CosmicCowboy

When the house sets the vig too high people quit gambling.

Pretty simple, really.

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Then what will they do?

same argument gets trotted out every time taxes are hiked: people will stop investing, the economy will be destroyed. never comes true.

pretty simple, really.

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Originally Posted by ChumpDumper

Then what will they do?

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Just depends on what looks good at the time...pull their money out of US stocks and invest in foreign growth stocks?

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Originally Posted by ChumpDumper

Then what will they do?

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Get a real job, hopefully.

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Originally Posted by Winehole23

same argument gets trotted out every time taxes are hiked: people will stop investing, the economy will be destroyed. never comes true.

pretty simple, really.

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*Ding Ding*

People that ''invest'' their retirements on stocks, which are based on emotional feelings (Let's ignore the immense amount of fraud/insider trading)...... should be aware of the risk.

These tax breaks are just more ways for the wealthy to store away their money. Does Romney come to mind?

- If you are wealthy then more power to you & I understand you wanting these changes
- If you AREN'T wealthy... then why do you continue to back a game where you aren't able to play by the same rules?

Risking that I MIGHT be effected down the line vs Seeing instant increase in government money through taxes

is a no brainer. I'm going to risk Mitt Romney packing up and moving to Iceland

CC, it really is an alarming set of numbers, but each set is based on an assumption less likely than the one before. The only way to get to those huge increases is to assume that all of the deductions and loopholes that they are discussing will be passed, along with adding on estimates from other governmental programs (like Health Care) that are essentially unrelated.

It isn't going to happen, and you and I both know it won't.

Quite simply, the deductions and investment pieces will never get passed, especially in an election year, so all that is happening here is posturing.

If I really thought that the dividend payments were going to be taxed at such a high rate, I would get out of mine tomorrow, because you are right that the stocks that are paying dividends will devalue if this were to come about. But it isn't about to come about.

This works for Obama to say to his base "See, I'm trying to get the fat cats" and to the Republican base who can say "See, they're trying to kill us with taxes."

It is an election year. We have to be careful how we respond to this sort of thing, imo.

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Originally Posted by NewcastleKEG

*Ding Ding*

People that ''invest'' their retirements on stocks, which are based on emotional feelings (Let's ignore the immense amount of fraud/insider trading)...... should be aware of the risk.

These tax breaks are just more ways for the wealthy to store away their money. Does Romney come to mind?

- If you are wealthy then more power to you & I understand you wanting these changes
- If you AREN'T wealthy... then why do you continue to back a game where you aren't able to play by the same rules?

Risking that I MIGHT be effected down the line vs Seeing instant increase in government money through taxes

is a no brainer. I'm going to risk Mitt Romney packing up and moving to Iceland

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Understand, I have ZERO money in the stock market because I agree, but if you are a typical employee of a corporation you probably have some kind of a 401K plan that invests in stocks and if this goes through you will be screwed...again.

For SEC, investigating insider trading in Congress presents complications

http://www.washingtonpost.com/busine...B5Q_story.html

The rich people like Romney will end up paying 30% income taxes - which are still less that the 38% under Bill Clinton.

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Originally Posted by CosmicCowboy

So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.

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Ah yes, lies, damn lies, and statistics.


Corporate tax rates actually aren't all pegged at 35%, that is just for companies over about 18.3million.
http://www.taxpolicycenter.org/brief.../statutory.cfm (from 2008, but probably not too far off from current)

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Originally Posted by recent reuters article

U.S.-based companies now pay wildly different effective tax rates, with many far below and some well above the 35 percent statutory rate. For example, big multinational companies like General Electric and Boeing are able to shift intellectual property abroad and enjoy low effective tax rates

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Truth is the maximum rate might be 35%, but if most companies paying dividends are paying less, and in some cases a LOT less, ASSUMING the 35% rate doesn't really reflect reality.

Not that Op-eds have to hew to things like realistic assumptions. That is why they get used in political forums.

Not to mention Obama is proposing a reduction in the corporate tax rate.

That column is full of shit.

45% on 35% franked dividends lol good luck fellas

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Originally Posted by ChumpDumper

Not to mention Obama is proposing a reduction in the corporate tax rate.

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And then capturing 100% of income including foreign subsidiaries already being taxed at their local countries rates. Forgot to mention that, huh?

Fat chance of THAT happening. He's running for re-election. Only gullible guppies like chump think he really wants to lower the corporate tax rate.

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Originally Posted by Winehole23

same argument gets trotted out every time taxes are hiked: people will stop investing, the economy will be destroyed. never comes true.

pretty simple, really.

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Yup. It never is the invest-ocolypse that is predicted.

What the author of the OP neglected to say, is that the budget also proposes a lowering of the overall corporate tax rate.

Broaden the base by eliminating loopholes, lower the rate (note the author assumed the dividend hike, but not the rate cut) and the effective tax is a lot lower.

Personally I think capital income should be treated on a similar scale as wages, especially given the income gains of the stratospheric .1%.


Meh. Ain't gonna happen next year anyway. There is a snowball's chance in hell the Republican congress is going to vote for anything that Obama might even remotely be able to take credit for.

Kind of makes the whole pissing contest a bit moot.

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Originally Posted by ChumpDumper

Not to mention Obama is proposing a reduction in the corporate tax rate.

That column is full of shit.

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It is worth mentioning that dividend stocks held in Roth IRAs.... don't pay any income taxes, ever.

Whoot. Roth FTW.

http://en.wikipedia.org/wiki/Roth_IRA

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Originally Posted by RandomGuy

Yup. It never is the invest-ocolypse that is predicted.

What the author of the OP neglected to say, is that the budget also proposes a lowering of the overall corporate tax rate.

Broaden the base by eliminating loopholes, lower the rate (note the author assumed the dividend hike, but not the rate cut) and the effective tax is a lot lower.

Personally I think capital income should be treated on a similar scale as wages, especially given the income gains of the stratospheric .1%.


Meh. Ain't gonna happen next year anyway. There is a snowball's chance in hell the Republican congress is going to vote for anything that Obama might even remotely be able to take credit for.

Kind of makes the whole pissing contest a bit moot.

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The contest involving the wealthy guys fighting over how much more wealth they will make in the next 2 years?

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Originally Posted by CosmicCowboy

This is not trickle down theory.

This is pure trickle up theory from the middle class to government.

Stock is valued on annual dividend plus growth potential.

A lot of retired people make retirement investments based on anticipated dividend income.

Cut that, and they not only lose the dividend income but the value of their stock drops too because it is not bringing the same return.

The little guy gets screwed again.

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Lol you think dividend rations determine stock prices. And the little guy is just basing so much of his income off of stock dividends. And if you are basing investments off these 25 or more to 1 ratios your an asshat and deserve to get owned for being stupid.

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Originally Posted by CosmicCowboy

And then capturing 100% of income including foreign subsidiaries already being taxed at their local countries rates. Forgot to mention that, huh?

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I didn't write the article, dipshit.

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Originally Posted by CosmicCowboy

This is not trickle down theory.

This is pure trickle up theory from the middle class to government.

Stock is valued on annual dividend plus growth potential.

A lot of retired people make retirement investments based on anticipated dividend income.

Cut that, and they not only lose the dividend income but the value of their stock drops too because it is not bringing the same return.

The little guy gets screwed again.

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Perhaps these people shouldn't gamble something as important as their retirement money on the stock market. But if they still are willing to do it, what's the problem?

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Originally Posted by ElNono

Perhaps these people shouldn't gamble something as important as their retirement money on the stock market. But if they still are willing to do it, what's the problem?

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RetirED people shouldn't really be in the stock market.

People who want to retire someday should be.

Risk=return over the long run.

Sound saving for retirement says your first money should go into stocks when you are young, then an increasing proportion of your savings should flow into progressively less risky investments over time as you draw nearer to the point where you will draw down on it.

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The Group of 20 has spouted the importance of “inclusive growth” for years without spelling out what it really means or how to generate it. The Organization for Economic Cooperation and Development, at least, will be telling G-20 finance ministers in Chengdu, China, this weekend what it thinks it should mean for taxation: less of it on low-income workers and more on high-income shareholders.


The Paris-based think tank has just junked the conventional economic wisdom on taxit had been promoting for years. That old view said income from capital that individuals receive–such as interest, rents, and dividends–should be taxed much more lightly than wages and salaries.


“For the past 30 years we’ve been saying don’t try to tax capital more because you’ll lose it, you’ll lose investment. Well this argument is dead, so it’s worth revisiting the whole story,” Pascal Saint-Amans, the OECD’s tax chief, said in an interview.

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http://blogs.wsj.com/economics/2016/...tax-guidebook/

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Instigated by the OECD itself, starting next year tax authorities in more than 50 countries, including all G-20 nations along with Panama and Switzerland, will start automatically exchanging citizens’ tax and bank account details. Up to 100 nations promise to take part after that.

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be worse under CLINTON!

The rate should be raise, but why not just report it as regular income? Why is the government so obsessed with HOW people make their money? It just makes everything more complicated than necessary, and distorts the market. Income should be income.