Dividends Tax Rate Next Year?

Congress is beginning to realize how expensive it will be to cap the dividends tax rate at 20% for those earning over $250,000 beyond the end of this year. Yesterday, House Ways and Means Chair Sander Levin (D-MI) told the Bureau of National Affairs that it would be “very expensive” and that there was no provision for exempting it under the Budget Act or for “paying for” it at a cost of $138 b. FY11-FY20.

Congressional taxwriters have spent the last few months struggling to find ways to “pay for” $31 b. of extensions of expired tax provisions and would have a much more difficult time finding $138 b. worth. President Obama has proposed setting the dividends and capital gains rates at 20% for all taxpayers. So far, there have been no signs that Congress is ready to grapple with the issue of extending the 2001 and 2003 Bush tax cuts. It could easily fall over until a lame duck session after the election.

If nothing is done, under present law, the dividends tax rate for those over $250,000 would rise to 43.4%, equal to the 2011 top income tax rate of 39.6% plus the recently enacted HI tax of 3.8% on the unearned income of those over $250,000. If that’s allowed to happen, it will kill the stock market for a while.

About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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