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%.
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.
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DelMarVa's Premier Source for News, Opinion, Analysis, and Human Interest Contact Publisher Joe Albero at alberobutzo@wmconnect.com or 410-430-5349
2 comments:
Joe,
While your article makes complete sense most corporations don't pay anywhere near the 35% tax rate. In 2010 GE made $14.2 billion and claimed a $3.2 billion tax benefit. When research was done on 280 of the Fortune 500 companies the average tax rate was about 18.5%. Almost half of the companies paid less than 17.5%. And 30 of the companies had a negative tax rate. So if Washington was to get rid of all of the loopholes in the corporate tax structure than the increase really would screw people over.
827-Dividends influence private investment. You want to see what happens when trillions get pulled out of the market if this ever passes? Utter chaos. I personally will sell every share I own, without batting an eye. I tolerate the 15% divi tax today, but if it is raised, I'm out.
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