What the 'dividend cliff' means for investors
Unless Congress acts, the wealthiest taxpayers will see a sudden spike in dividend taxes.
How bad is it? Right now, the maximum dividend tax is 15%, the same rate as long-term capital gains. But for the wealthiest investors -- those making more than $200,000 a year or filing a joint return of $250,000 or more -- that rate could soar to 43.4%.
Those rate increases could kick in if Congress does not act. But there is the very strong likelihood that after the November elections, Congress will extend the current tax system for a year in order to figure out some more sensible changes. Right now, everything is in flux.
Even if Congress does act, the wealthiest investors will still face a new 3.8% surtax on dividends. That came out of President Obama's health care legislation. So even if the low rates are continued, the top dividend tax rate will rise to 18.8%.
Here's one example of how the surtax would work, according to The Journal. Say a married couple jointly reports $400,000 in income, including $160,000 in investment income. Their income is $150,000 above that $250,000 threshold, so the surcharge would apply to that $150,000 amount. They would owe $5,700 more in taxes.
Wealthiest investors could see dividend tax rates spike if Congress allows dividends to be taxed like ordinary income. In that case, the richest taxpayers could see the dividend rate go to 39.6% plus the 3.8% surtax.
The dividend tax hikes are a huge question mark for companies trying to figure out when to schedule their dividend payouts. Scheduling it before Jan. 1 makes sense, and it really makes no difference to companies financially if they speed up their dividend to meet the deadline, reports Jason Zweig of The Journal.
So expect to see increasing investor pressure on companies to pay out dividends in December instead of January. One company that is so far sticking firm to a January payout is Wal-Mart (WMT), which is holding on to its Jan. 3 payout date, Zweig reports. So far, the retailer shows no signs of moving that date. Other companies, like General Electric (GE), aren't saying what they're going to do.
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Ok, lets take a step back on this, and look at how this affects a retiree. Forget about the wealthy who making over 250K. Let look at a retired elderly woman who is living on their dividend income of 35,350. Under the current plan those dividends are taxed at 15% or approx $5,250. Under the new plan they are taxed at 25% or $8,750. Thats is an extra $3,500! That pretty huge increase.
Correct me if I am wrong but this affects everyone who's income tax bracket is above the 15% and has some sort of dividend income, not just the rich!
Please dont be fooled by Obama and taxing the rich, he is increasing taxes on everyone who invests.
Lets take a 35 year old tech worker in silicon valley who makes 85,651 and has 20k in dividend investment income. Instead of paying $3000(15%) in dividen taxes, he would now pay $5,600(28%) an extra $2,600. Extra cash he may have used to purchase something that would add to the economic growth, but now that purchase is squashed.
No incentive to gain anything reduces us all to the lowest common denominator, poor and miserable.
I'm sure the liberals just love that idea....everyone poor and miserable....
How about a flat tax? Why should I pay more proportionately than anyone else? "Congress shall make no law that treats one citizen differently than another." Why is it OK to fleece a citizen that happens to have more personal property than you? Money is just personal property. The government is great at misinformation. Only in the government could STEALING LESS of my property be considered a "tax break". Please people, wake up.
Attention Dems. If you like bigger government, higher taxes, government running your life vote for the socialist Husain Obama. These socialist polices create wealthy and poor classes only. If you believe that you can run your life better than politicians and prefer smaller government and less taxes vote Republican.
This is the lowest common denominator in the envy game.
You cannot punish other people for having more money than you do, period.
It doesn't matter if you 'think they don't deserve it' or not, confiscation of wealth is not deserved no matter what your income level. There will always be envy. Suck it up and accept that there will be differences in economic status.
 Ayn Rand is dead;
 Her ideas were stillborn;
 Her devotees are more than braindead;
 Her devotees are vicious braindead.
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These companies won't soar like other plays in the sector, but they make for great income sources.
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