President Obama’s proposed budget includes dividend tax rate increase to 39.6 percent

Alex Myers Contributor
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Buried in President Barack Obama’s 2013 budget proposal is a whopping increase in the dividend tax rate.

In 2003, under President George W. Bush, the rate dropped five percent from 20 to the current 15. Obama now wants to raise it to 39.6 percent.

This is not the first time the Obama administration has proposed a tax hike on investors. Previously, the administration proposed increasing the tax rate to more than twenty percent.

If adopted, the president’s proposed budget would make the tax paid on corporate dividends the same as the top rate individuals will pay on earned income starting in 2013 — 39.6 percent.

A Wall Street Journal opinion piece, however, states that the real tax rate on dividends proposed by the president would be about 44.8 percent.

“Add in the planned phase-out of deductions and exemptions, and the rate hits 41 percent. Then add the 3.8 percent investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8 percent — nearly three times today’s 15 percent rate.”

The new dividend tax rate would apply to individuals with gross incomes of $200,000 and join fillers with incomes above $250,000.  The WSJ questions whether this burden would only fall on the “filthy rich”.

According to IRS data, those over the age of 55 receive three out of four dividend payments, and those over 65 get more than half of all dividend payments.

The WSJ piece makes the case with quotes from top researchers at conservative think tanks that an increase in the dividend tax rate would result in less dividends being paid to shareholders and hints that capital would be left stranded in old line manufacturing firms — an economic sector the president has been trying to help in his bid for re-election.

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Alex Myers