Happy Days are NOT Here Again
What do investors expect the dividend tax rate to be in 2011? This will be the year after the Bush tax cuts expire.
Recent surveys show that tax rates will rise dramatically. Here is why: Democrats are likely to maintain their majority in both Houses of Congress. In addition, the Dems will probably pick up seats in the Senate. Even if the GOP wins the White House, a Republican President will probably be dealing with a Democratic Congress. On the other hand the more likely scenario is an all-Democratic government (look out for what you pray for … here it comes).
Under current law the dividend and cap gains tax rate would return from the present 15% tax rate to the old 39.6%. All the Democratic candidates have said they would repeal the Bush tax cuts immediately. In addition, Rep. Charles Rangel (D-N.Y.) chairman of the tax-writing Ways and Means Committee is vowing to repeal the AMT. He is proposing a surtax on high income individuals plus moving the top rate (including dividends and cap gains) from the present 35% to 44.2%.
[Side Bar: I have written countless times in this blog that taxes will be going up in the future. You should have restructured your contributions to the time-bombs, (i.e. 401K and IRA) and even been pulling money out of your qualified plans at the present low rates.]
Even if the GOP and Dems settle on a dividend and cap gains rate of “only” 28% that is a doubling of the present tax rate.
Conversely, a Republican President will probably be faced with a majority Democratic Congress and be forced to make major concessions to get tax legislation passed. Yup – higher taxes!
What does this mean for you?
- Investors in the stock market are always looking ahead – Have the markets been dropping lately as investors, prepare for more taxes?
- Future stock market returns will be moderate at best.
- Investment into start up businesses will halt curbing job creation due to higher cap gain taxes.
- Businesses will have to lay off people as corporate tax rates also go up in order to maintain their basic profits.
- Jobs will move overseas to a more friendly tax environment.
- Investors will place monies overseas further weakening the U.S. economy and the U.S. dollar.
- Less take home money for you with increased taxes and rising inflation.
Presently Congress is working on a stimulus package to “give back” to us some of our own money (And also give some of our tax money back to people that have NOT paid taxes – Hmmm!)
Don’t they get it? The Dems want to raise taxes, but, they are full throttle to give back money via stimulus package. Isn’t the return of our tax money the same as a tax cut? Let the people keep more of their money. Most people know how to spend their own money better than Congress does!!!
And you said you wanted change? WATCH OUT … for Happy Days are NOT here again (Where are Richie, Ralph and Fonzi ? 
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