Fiscal Cliff Would See Dividend Tax Rate Almost TRIPLE for Wealthy

Screams about how these top-bracket income tax and capital-gains tax increases will ruin the economy by hammering spending and eliminating the incentive to work can be seen for what they are – the whining of people who don’t want their taxes to go up [BUT, when it comes to the possible increase in the top tax on dividends they have a point – a BIG point – a VERY big point. Let me explain.] Words: 450

So says Henry Blodget (www.businessinsider.com) in edited excerpts from his original article entitled In 6 Weeks, The New Dividend Tax Will Smack Rich People Upside The Head

 Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.

Blogget goes on to say, in part:

Unless Congress intervenes, taxes are set to rise significantly on January 1st, when we hit the “fiscal cliff”.

Income Taxes 

For incomes over ~$388,351, for example, income taxes are set to revert back to the Clinton-era 39.6% from the current 35%. That’s actually a relatively modest increase, and a 39.6% tax for the top bracket is still historically low.

Capital Gains Taxes

Capital gains taxes are also set to rise, from 15% to 20%. That, too, is a relatively modest increase to a capital-gains rate that is still historically low.

Dividend Taxes

HOWEVER, dividend taxes for those in the top tax bracket will jump from the current 15% back to the Clinton-era 39.6% – and then a new 3.8% surcharge to pay for Obamacare will be added on top, for a total top tax rate on dividends of 43.4%. In short, unless Congress compromises, federal dividend taxes will nearly triple on January 1, from 15% to 43.4%!

What this means is that well-off Americans who are collecting, say, $100,000 a year in gross dividend income will keep about $57,000 next year versus $85,000 this year, a drop of 33%.

Sign up HERE to receive munKNEE.com’s unique newsletter, Your Daily Intelligence Report

• It’s FREE
• It contains the “best of the best” financial, economic and investment articles to be found on the internet
• It’s presented in an “edited excerpts” format to provide brevity & clarity of content to ensure a fast & easy read
• Don’t waste time searching for articles worth reading. We do it for you and bring them to you each day!
• Sign up HERE and begin receiving your newsletter starting tomorrow

Possible Ramifications

Unlike the change in income taxes and capital-gains taxes, the change in the dividend tax rate is big enough to create a strong incentive for changes in behavior for the highest earning Americans as receiving taxable dividend income income will become strikingly less attractive than it is now.

As a result:

• the highest earning Americans will likely try to shelter this income in non-taxable accounts or shift  dividend-paying investments to investments designed to produce long-term capital gains (which will still be taxed at a far lower rate than ordinary income) and
• companies may come under pressure from shareholders to stop raising dividends and, instead, use excess cash to buy back their own stocks.

Who in the world is currently reading this article along with you? Click here

Bottom Line

…It’s certainly reasonable to tax dividends at ordinary income rates, unless you’re trying to encourage people to invest in dividend paying investments and, unlike some of the other tax increases that are scheduled to hit on January 1, a top-bracket dividend tax increase will land squarely on the highest earning Americans, folks who arguably have more flexibility with which to be able to afford it….

BUT a jump from 15% to 43.4% is a big tax increase…

*http://www.businessinsider.com/new-dividend-tax-2012-11

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

Related Articles:

1. U.S. May End Up Having the HIGHEST Dividend Tax Rates Among the G-10 Countries Next Year! Here’s a Comparison

The U.S. may end up having the highest dividend tax rates among the G-10 countries next year [if] the current rates are not extended. [In fact, the rates will double for most and triple for some along with significant increases in capital gains taxes. Below is a comparison of how the current dividend tax rate compares with the other G-10 countries and how it would compare in 2013 should the reduced rate not be extended.] Words: 325

2. Grappling With the Possible Impact of the Fiscal Cliff

If Congress addresses the issue by maintaining the current tax and spending policies we will get more of the same economy we have experienced for the past three years (all else being equal). [That being said,] what if Congress goes over the fiscal cliff hit? This blog post is designed to asses the impact. Words: 1362

3. The Fiscal Cliff: What Is It? What Are Its Ramifications? What’s the Best Way to Invest for Such an Eventuality?

What is the “Fiscal Cliff”? What would its ramifications be? Will it tip the U.S. into a recession? What are the critical economic building blocks that would be adversely affected? How best should you position your portfolio for such an eventuality.

4. This Is What “Falling Off The Fiscal Cliff”  Really Means – and It is DIRE!

We all know that high debt is a growth killer and, at the moment, the U.S. has a budget deficit of about $1 trillion. That’s a very big number…The question is, at what point do countries have to deal with high debt levels? How high do debt levels have to be before one has to deal with the problem by lowering budget deficits? Also, what are the consequences of such debt and budget reductions? Words: 500

5. Goldman Sachs: The Fiscal Cliff Is a Real & Present Danger to Future Level of S&P 500 – Here’s Why

“Portfolio managers have been swayed by hope over experience” when it comes to anticipating the effects the fiscal cliff will have on markets. Investors aren’t giving as much attention to the fiscal cliff as they should be, and that may be helping to set the markets up for a repeat of last year, when the debt ceiling negotiations sent stocks plummeting.

6. The Fiscal Cliff: Components, Controversies & Compromises

The term “fiscal cliff” was first coined by Ben Bernanke in early 2012, and it refers to the roughly $718 billion that will be withdrawn in some way, shape or form (4.6% of our nation’s annual economic output) from the economy in 2013. This will occur in the form of tax increases and federal spending cuts. If nothing is done, and all the scheduled tax increases and spending cuts go into effect on January 1, the Congressional Budget Office estimates that the economy will contract slightly in 2013. Other estimates (including ours) show a much deeper recession would be likely. Words: 940

7. Regardless of Who Wins in November the U.S. Is Going Over the Financial Cliff! It’s Just a Matter of Time – Here’s Why

The outcome of the election of 2012 will [only] determine the rate of speed at which we approach the [financial] cliff [because] neither political alternative is willing to change course, to steer away from the cliff. The cliff is so high that whether we go over it at 200 mph (Obama) or whether we merely slip over the edge (Romney), the end result is the same — fatal for the economy and perhaps our entire political system. It is the fall that will kill us. [This article explains why that is going to be the case.] Words: 1135

8. Fiscal Tightening in 2013 and Its Economic Consequences

Under current law, a sharp reduction in the federal budget deficit between 2012 and 2013 will cause the economy to contract but, the Congressional Budget Office projects, will also put federal debt on a path more likely to be sustainable over time. To illustrate the effects of fiscal tightening, CBO compared its projections under current law (the “baseline” projections) with projections under an alternative set of policies — two scenarios in a broad spectrum of choices – in the infographic below.

9. The Fiscal Cliff: Everything You Need To Know About It & Its Implications

The U.S. federal government is scheduled to implement a fiscal tightening of unprecedented severity (approx. 5% of GDP) at the start of 2013. The last time a tightening of such proportions occurred (3% of GDP in 1969) it presaged a recession. Thus, unless mitigated by an act of Congress, we expect the fiscal cliff would lead the U.S. into a recession in 2013. Below, in 26 charts, we examine all aspects of the impending crisis to gauge its potential impact on the credit markets and, by extension, our strategic investment recommendations.

10. Fiscal Cliff Scenario Analysis of the 4 Possible Election Alternatives & Their Financial Implications

This post shows JPMorgan’s estimated probabilities on four different fiscal cliff outcomes, conditional on who wins the presidential election in November.

11. The Fiscal Cliff: What We Think Will Happen and What Investors Should Do

Unless the government acts quickly, it is probable that the term “fiscal cliff” will become a household phrase over the next few months. Unfortunately, this is reminiscent of the budget ceiling crisis about a year ago. In this report we will explain what the cliff is, discuss the worst case scenario, and determine what, if anything, you should do about it. Words: 1436

12. Impact of U.S. Fiscal Cliff on Canada, Mexico and Much of the Developed World Would be Major

The (relative) impact on economies around the world would be major but particularly on Canada, Mexico and to a lesser extent on some other economies in a precarious state –- the UK, Germany, China, and Japan. [The details are illustrated, country by country, in a map below. Take a look.]

13. What’s Coming: A “Fiscal Meat Grinder,” A “Fiscal Cliff” and a Potential “Major Market Meltdown”!

The International Monetary Fund, the U.S. Congressional Budget Office, the National Association of Manufacturers and many other authorities are now warning that with the largest tax increase in U.S. history — plus the largest government spending cuts our nation has ever seen – one of the deadliest financial crises in U.S. history is set to strike the U.S. economy beginning this coming New Year’s Day. Barring a miracle in Washington….. Words: 1028

14. Forget About the Fiscal Cliff! Increased Taxes & Austerity Measures Are Coming to the U.S. Regardless! Here’s Why

It’s easy to find analysts and investors who are certain that a deal [to avoid the fiscal cliff] will be reached, or at least that the can will be kicked down the road to buy more time. It’s also easy to find more pessimistic views that are based on the lack of cooperation in the past, and a deeply polarized country and political system. However, I think many are missing the point, which is that austerity is coming to America – taxes are going up and government spending will be reduced – [and. as such,] the United States is likely to face a recession and market correction in 2013, regardless of whether or not a compromise is reached over the Fiscal Cliff. Words: 970

15. More on the Coming ‘Perfect’ Financial Storm from Peter Schiff

The perfect storm is the real fiscal cliff that we’re going to go over. The real fiscal cliff is when we can’t borrow any more money because our creditors wake up to the fact that we’re no good for the debt and interest rates start to rise.

16. Taxes on “Rich” Vary Dramatically by Country – Take a Look

There is a lot of debate these days about the extent at which the “rich” among us should be taxed. That is an argument that no one is going to win but the findings of a study comparing the tax rates of such individuals on a comparative basis by country is most enlightening. Take a look to see how your country’s tax rates on the “rich” compare with other countries. Some of you will read this article and be quite displeased while the majority of you should realize that you have nothing to complain about (relatively speaking, that is). Words: 455

17. How Much Do Americans Earn?

How much does the typical American family make? This question is probably one of the most central in figuring out how we can go about fixing our current economic malaise. In this article we break down the U.S. household income numbers. Words: 464

18. How the Poor, Middle Class and Rich Spend Their Money

How do Americans spend their money and how do budgets change across the income spectrum? The graph below answers these questions. Words: 240

19. How Many Minutes of Work Does It Take to Buy a Pack of Cigarettes in Your Country?

In a recent article* Morgan Stanley tobacco analyst David Adelman compares the average price of a package of cigarettes to how long it takes to buy that package based on minutes of work. How many minutes do you think it takes to pay off a pack of cigarettes in Canada, the U.S. etc.? Words: 557