Triple Tax Increase in Your Future

A timely article from the Investors Business Daily calls our attention to the effect changing tax policies will have on capital gains and dividend payouts. If Bush’s tax cuts expire as scheduled, taxes on these forms of income will almost triple overnight.

With current tax cuts, capital gains and dividends are currently taxed a flat rate of 15 percent. After the tax cuts’ expiration however, these forms of income will be taxed as if regular income — that means a ceiling of 39.6 percent on the gains of those in the wealthiest income bracket.

But that’s not all — the new healthcare law mandates a 3.8 percent tax on passive income, including dividends and interest. With that, effective dividend tax rate in the wealthiest bracket would be a whopping 43.4 percent.

Of course the Obama administration argues that the wealthy can afford such tax hikes. But according to the article, the wealth are not the only ones who will be affected. Increased dividend taxes makes stocks that pay dividends less attractive to investors:

“So those who currently hold dividend paying stocks — everyone from middle-class folks with 401(k)s to union pension funds to non-profit foundations — would see the value of their investments decline substantially.”


Not to mention, the devastation to retirees — “the IRS states that more than half of the dividend payments go to Americans over age 65.”

Since tax laws are constantly changing, so is our practice at Garza & Harris. We hope you stay abreast of what’s going on — but rest assured that we do.