On the first day of 2013, the amount of taxes that top U.S. stock market investors will have to pay on the dividends they earn will increase. The only question at this point is by how much. Will taxes on dividends rise from 15% to 18.8% because of the ObamaCare tax on investment income that will take effect on that date or will dividend taxes rise from 15% to 43.4% thanks to the additional tax increase related to the 2003 Bush-era tax cuts that are currently set to expire after the last day of 2012?
That question matters today because, as expected, influential investors are pushing companies to boost their dividend payouts in December 2012 to beat the clock on the dividend tax increases that will take place in 2013.
Here, because about two-thirds of all the ordinary and qualified dividends that will be subject to the higher dividend taxes are earned by people with household incomes over $250,000, at least if you go by the IRS' tax return statistics for 2009 [Excel spreadsheet], the most recent year for which data is available at this writing, and because these same people who will be most subject to the higher taxes are the ones who have the ability to affect the amount and timing of corporate dividend payments, all investors will be affected by their response to the tax increase. [We should note that this point will likely be lost on the more clueless commenters of Seeking Alpha.]
That brings up an interesting question. Where will the companies that act to boost their dividends in 2012 get the money to pay them?
Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.
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