Investment Taxes Under the Microscope

Selfishly, and on my high net worth clients’ behalf, I would very much like to see any bipartisan debt deal (or can-kick or keg-stand or whatever they’re now expecting) to leave taxation on investment income – dividends and capital gains – alone.

But that’s obviously not going to happen.

The current rates of 15% on both dividend income and cap gains, in place since 2003, will be one of the most obvious casualties of the negotiation. The worst case scenario would be for both to immediately zoom up to ordinary income rates, the best case would be a nudge up to 20%.

But who knows…

In the meanwhile, James Kwak has a good post up at The Atlantic looking at why the wealthy should be very concerned about how this turns out…

The loophole for investment income is one of the biggest ones that exist, worth about $440 billion over the next five years (2013-2017).* If the goal is for rich people to pay more in taxes, this is the most important loophole to close. Lower rates on investment income overwhelmingly benefit not just the modestly affluent, but the super-rich. According to the Tax Policy Center, households that make more than $1 million make up just 0.3 percent of all households but reap 67 percent of the benefits of this one loophole. That shouldn’t be surprising, because the investment assets that earn income mostly belong to the rich: the average million-dollar-plus household receives almost $800,000 in investment income. (Middle-class people own their houses, but the first $500,000 in capital gains from the sale of a house by a married couple are tax-free; and most middle-class people’s stock investments are in tax-free retirement accounts.)

For more on investment income and taxes, I recommend checking out the whole piece.


The Most Important Tax Break Is the One That Nobody Talks About (The Atlantic)

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