Is Obama Trying To Kill Dividend Investing?

By: ispeculatornew
Date posted: 03.06.2012 (5:00 am) | Write a Comment  (9 Comments)

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It’s interesting to see that despite all of the commentary and analysis about dividend investing taking place in the blogosphere, so little is being said about the impacts that letting the Bush tax cuts expire would have on dividend investors. I personally feel that it should be discussed. I’m certainly not saying that all of the Bush tax cuts should be renewed, don’t get me wrong. There is certainly something to be said for trying to get back to a balanced budget and while I do think that the vast majority of that should be done through spending cuts, there needs to be tax hikes and a general closing of the loopholes that make it so difficult these days to ensure a fair taxing system.

That being said, if the current dividend taxes that the Bush tax cuts took down to 15% do end up expiring, that will mean major changes for everyone that pays over 15% of income taxes (vast majority of you I would assume?). Now of course, this would only apply to dividends paid out in taxable accounts so some dividends that we own would not see any impacts. But what about everything else?

Who Is Being Impacted Directly?

These Bush tax cuts are often simplified in the media as being “taxes for wealthy”. I don’t think someone in the 25% tax bracket would necessarily consider themselves “wealthy”, at least most of them. Yes, I know, a large portion of those being impacted are more wealthy investors, the so-called 1%. That is even more true if you look at the dollar amounts that are being impacted

One thing I do not know is how funds such as dividend ETF’s would be impacted by such changes. Would such an ETF end up paying much more in taxes and thus have to pass on those taxes to the investor? I’m honestly not sure how that part works but would love to hear from anyone who does:)

The point of taxing those investors more should not be about how much they are making but about if the tax increase is fair or not.

This Will Impact YOU As Well

Yes you heard me, no matter what tax bracket you are in, I think this could have a major impact. Why? Because the fact that many investors will have less of an advantage in receiving dividends would give less incentives for companies to pay them out. That could end

“Unfair” Tax Increase??

The biggest point for me, especially when dividend taxes are concerned is the fact that the reason these tax cuts were made in the first place was to diminish double taxation. If you are not aware, the double taxation comes from the fact that the companies pay out amounts on which they’ve already paid taxes, “after tax earnings”. That is why many including myself believe that dividends should be taxed at a minimal rate if at all, to diminish this double taxation. The fact that some investors will end up paying nearly 40% of taxes on those dividend revenues after the company also paid taxes on those amounts seems unfair.

What are your thoughts on these dividend tax increases? Do you expect them to impact you in any way? Do you think they are right?

 

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9 Comments

  1. Comment by cashflowmantra — March 6, 2012 @ 12:35 pm

    The increase in the taxes on dividends will affect many people. Anyone with a teacher’s or public pension could be affected as demand for dividend paying stocks declines. Those who live off of dividends will have less cash flow. It will be a big change.

  2. Comment by Hans — March 6, 2012 @ 6:13 pm

    IS, if this Maoist is re-elected the dividend tax is not the only thing that will go up…

    BOCO, is at best a crony corporatist…

    The fact remains, there should be no dividend tax in the first place, since it will be taxed at the corporate level….

  3. Comment by IS — March 6, 2012 @ 7:23 pm

    @Hans – I wouldn’t go close to that far personally in regards to Obama but I do agree on the double taxation…

  4. Comment by Hans — March 7, 2012 @ 5:32 pm
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  6. Comment by Mike — March 9, 2012 @ 8:31 am

    Ok, here’s my objections to your arguments about double taxation:

    1. First if you pay a sales tax, property taxes, whatever, you are being double taxed. The double taxation of dividends are only special because they disproportionately affect the wealthy (yes some 99%ers get dividends but the wealthier you are, the higher proportion of your income will come from this source) whereas sales taxes tend to affect the lower and middle incomes more proportionately because they spend rather than save larger proportions of their income.

    2. Your double taxation argument also assumes that the corporations paying the dividends pay any taxes at all. There are many large corporations that due to loop holes and tax credits the pay no taxes whatsoever or even are in a negative tax bracket (they get money back in taxes) even on billions of income. So if this income is eventually taxed in the individuals hands through the dividend tax, that is the first time.

    In my opinion, dividends should be paid out of before tax corporate income and taxed like any other source of income in the shareholder’s hands. That would give the corporation the incentive to re-invest the money in the company if they can make a good return off of it (taking advantage of the lower tax rate in the corporation’s hands) or pay it out, get the tax break at the corporate level and let the investor do what he will with it after tax.

    Also in my opinion, all income should be treated the same rather than giving favorable treatment to income from investing over income from work. Why is it if I sit around on my but and make 10,000 in capital gains and dividends, I would pay less tax then if I make 10,000 by working my but off at a job? Doesn’t make sense to me.

  7. Comment by Matthew C. Waterman — March 9, 2012 @ 4:21 pm

    I don’t have a problem with it. It’s a way to stop adding to the deficit. I invest for the future, and I’m also interested in both cutting debt and building opportunities for that future.

    Paying taxes builds your country. Building your country means more dividends for the future me. I’m good with that.

  8. Comment by Mike — March 11, 2012 @ 9:13 am

    THIS opinion piece is dishonest and deceitful! It fails to even mention that Obama’s proposed tax increase on dividends will only apply to those households with taxable incomes above $250,000. Then the article indulges in complete speculation and guesses about what might be the impact of the proposed tax. I think it is safe to say this opinion piece is short on facts and just about useless in providing any factual information about the proposed tax.

  9. Comment by Harry — March 11, 2012 @ 1:03 pm

    “Hans”

    You seem like you are an extreme right wing ideologue based on your comments and I know that the link you have posted is to a right wing website. The issue about President Obama having been a member of the New Party is an issue which came up well before the 2008 presidential election. Basically there was nothing to this issue other than the New Party had endorsed Obama who was running as a Democratic Party candidate for state office in Illinois. The New Party was a a fringe party to the Democratic Party and was in existance from about 1992 until 1997/1998. As an example, the Tea Party is a fringe party to the Republican Party. The politics of the New Party was what is considered social democratic or progessive democratic. The party was not Moaist or Communist. In his political life President Obama has always been a member of the Democratic Party. In his 1996 campaign for Illinois state Senate, district 13, Democrat Barack Obama was endorsed by the New Party and the New Party even refered to Democrat Barack Obama as a “member” of the New Party. Whether Barack Obama was ever a bona fide member of the social-democratic, New Party is not known and the New Party ceased to exist in 1997/1998. The issue of the New Party is no longer relevant today as President Obama has now spent almost 16 years in elective office. President Obama served as an Illinois Senator for 8 years from Nov.1996 to Nov. 2004 at which time he resigned his office upon his election to the U. S. Senate. He then served in the U.S. Senate until his election as President of the United States in Nov. 2008.

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