Obama is Coming for Your Portfolio, Homey

• The capital gains rate will rise from 15% today to 23.8% next year.  That’s because the Obama budget assumes the pre-2001 capital gains rate of 20% for investors earning more than $250,000 per year.  On top of this, the Obamcare surtax on investment will raise this rate to 23.8%.  Separately, capital gains earned as “carried interest” will be taxed at ordinary income tax rates.
• The dividends rate will raise from 15% today to 43.4% next year.  The Obama budget proposes taxing dividends for investors making more than $250,000 per year at ordinary income tax rates, which will rise to a top rate of 39.6% under the budget.  In addition, the Obamacare surtax on investors will combine to nearly triple the tax rate on dividends in just one year.
• The real tax rate on capital gains and dividends is actually even higher than this.  Since taxes on dividends and capital gains are a cascaded double taxation on savings, the rate is actually far higher than this.  Before being taxed to investors as capital gains and dividends, the money first faced taxation as corporate profits.  The U.S. has the highest corporate income tax rate in the developed world at 35%.  When factoring this in, the Obama budget is actually proposing a capital gains tax rate of 50.5% and a dividends rate of 63.2%.  That would leave U.S. employers and savers at a severe competitive disadvantage.

What impact would this have on the stock market – especially in light of the fact that cash-rich corporations are finally paying out dividends and people are in need of that equity income more than ever?

Source:

Obama Budget Raises Taxes on Small Employers, Savers, Families (AFTR)