As the big tax increase day of January 1, 2011 approaches, the Democrats running Congress are beginning to lay out their priorities. Get ready for bigger rate increases than previously advertised.
Last week the Senate Budget Committee passed a fiscal 2011 budget resolution that includes an increase in the top tax rate on dividends to 39.6% from the current 15%—a 164% increase. This blows past the 20% rate that President Obama proposed in his 2011 budget and which his economic advisers promised on these pages in 2008.
(See "The Obama Tax Plan," August 14, 2008, by Jason Furman and Austan Goolsbee: "The tax rate on dividends would also be 20% for families making more than $250,000, rather than returning to the ordinary income rate.")
And that's only for starters. The recent health-care bill includes a 3.8% surcharge on all investment income, including dividends, beginning in 2013. This would nearly triple the top dividend rate to 43.4% in Mr. Obama's four years as President.
Do you think this will
a) encourage me to put more money into the stock market
b) encourage me to put my money somewhere else
c) encourage companies to pay out more money as dividends to stockholders
d) encourage companies to put their money somewhere else
e) both "b" and "d"
If you said "e", you're right. And, when the economy keeps failing to recover from the recession, you may try asking Nancy Pelois, Harry Reid, and President Obama if they have any idea what could have caused people to just sit on their money for a while. If you have a 401(k) account, you might also try asking them why they're trying to torch your retirement savings.
Finally, if you live in Wisconsin, you may want to give Senator Russ Feingold a call. He's up for re-election this year and he sits on the Senate Budget Committee. You might want to put those questions to him too. You can reach his local, Madison, office at (608) 828-1200. If you'd prefer email, his address is firstname.lastname@example.org. If you'd prefer snail mail, you can send it to:
1600 Aspen Commons
Middleton, WI 53562-4716