I haven’t done much with my portfolio over the past several months because I anticipated that regardless of who won the election, the fiscal cliff and its associated hikes in dividend tax rates would be resolved in short order and the market shouldn’t react too much one way or the other leading up to it. Our Congress has been so adept at just kicking the can down the road and continuing to delay any hard decisions, that we’d probably see more of the same. I figured markets would anticipate that and we wouldn’t see substantial market moves one way or the other due solely to the fiscal cliff issue. I was wrong on that judging by market reaction since Obama won the election. Markets have been down, but to be fair, I think the implosion in Europe has something to do with it as well. Trying to keep up with which of Petraeus’s mistresses was involved in what has distracted news organizations from reporting real news, but in case you’ve missed it, the situation in Europe continues to worsen (anti-austerity protests rock Europe).
Regardless, since Obama’s election win, and rhetoric out of the Whitehouse, it looks as though they’re going for political gold. There was much talk today about tax hikes on the wealthy, increases in “revenue” of more than double what was previously discussed ($1.6 Trillion over 10 years vs. $800 million) but no real discourse at all around reigning in entitlement spending. So, stripping out politics and focusing solely on the tax issues for investors, that could potentially spell higher rates for dividend paying stocks. A high net worth investor, if paying federal taxes on dividends at the 39.6% top bracket rate, could end up paying taxes of about 44% due to the added burden tied to Obamacare’s “fee” on investments for high net worth individuals as well. So, dividend investors used to paying 15% now and that could triple. It should come as no surprise then, if dividend stocks do sell off from high net worth individuals. I’d like to think that there would be enough investors under the income cap that would see the value in dividend payers (or, people that are shielded from taxes in their Self-Directed IRA like me), but only time will tell.
Here’s What Happened in the Week Since the Election (Continue Reading)….
George W Bush wanted the tax cuts he created to expire.
If thats what the GOP agreed to then….then let them expire.
Ennyhoo, Bawler and Bummer will agree to raise the debt limit [they always do] aand increase revenue. Bawler wanted 800 billion in 2011 and Bummer wanted 1.2 trillion. Expect something in between. And yes, Bummer is for reducing entitlement programs.
I’d sooner see them all expire than just do the usual – impose more taxes on businesses/wealthy while leaving half the country paying no federal income taxes into eternity (which will continue to grow until only 25% of the population is bearing full burden).
Let em expire! That’s what the legislation said!
Really frustrating. I could get behind elimination of some of the absurd deductions.
On these sector moves since Obama won btw, gotta love the gun company stocks – really took off!
I’m tempted to convert some idle cash back into Dominion shares as they are well placed with their utility operations ( Virginia, Ohio) and a nuke up in Conn. to avoid any downturn in power generation and their natural gas pipelines, storage and ownership of both shale gas acreage and the Cove Point LNG facility put them in a good position to take advantage of the shift to gas but I am worried the share price could fall some more if we get a big selloff between now and January. Up to now its only about 10% off its all time highs but if it drops down another dollar or two I’ll probably load up on it to get some income.
I’m thinking if everything yield/dividend gets crushed for another couple weeks, may be a good time to jump into some MLPs as well. Can often get 8% yields and up and I don’t see oil/gas requirements declining much in the coming years.
Actually, the stock market has doubled sisce Obama took office…
Additionally, “From 1954 to 1984, dividends were taxed at the owner’s personal rate, with a nominal $50-100 dividend exemption. From 1985 to 2002, dividends were fully taxable at personal tax rates.”
http://westwoodgroup.com/wp-content/uploads/2012/03/Myths-of-Dividend-Stocks.pdf
So during the period of the greatest expansion of wealth in the modern US history, along with the largest and longest bull market, dividend taxes were much higher…
Druing the much ballyhood Reagan years, dividends were taxed at 28%, and the capital gains rate went from 20% in his first term to 33% in his second term….
http://seekingalpha.com/article/189189-u-s-dividend-cap-gains-tax-rate-history-possible-relevance-to-future-taxation
So why doesn’t Obama just argue to go back to the rates Reagan had…
Looking at the American economy now, it seems that tax cuts, not only have not trickled down to the lower classes, but have pretty well destroyed the American economy…
Randy, its pretty obvious to you its all academic but the reason dividend tax rates are more important today than in the Reagan era is that retail investors have been chased into owning dividend stocks because the Obama Administration has engaged in policy of financial repression to keep interest rates down. In 2008 a little old lady could get a CD from Wachovia bank that paid a guaranteed 5% APR. That is no longer possible but people based their retirement or retirement plans on a rate of return that was removed by Ben Bernanke. Lets say my little old lady moved her savings as Bernanke intended from her bank to the stock market to earn 4% from a safe dividend stock like the one I mentioned Dominion Resources. If Obama raises the tax on dividends people who were chased into the stock market by the manipulations of the Central Bank could not take large capital losses. Is that fair? These are not market induced losses but losses created by deliberate policy actions of the US government.
One could also posit that the Bush tax cuts (and the Bush wars), put the economy into the free fall it was in in 2008…
That the meltdown of the market led to dividend rates that were unheard of before the crash…
That meltdown forced the hand of the central bankers and the obama administration to institue the ZIRP policy, to save the banking system from collapse, that led to the disintegration of interest income to little old ladies…
Since markets have not fully recovered, the anomally of dividend rates on blue chip rates being higher than the 5, 10, AND 30 bond rate, have led more little old ladies to take more risk (although we really don’t know that)…
So, what is a more riskier risk for the little old lady?
Higher tax rate on higher divedend rates than can be achieved through bond ownership, or Higher risk associated with owning equities when your too old to recover from a market melt down…?
As I began, one could argue that the current policies are a direct result of the Clinton, Bush, administrations choices surrounding the repeal of Glass-Stegal, and the Bush doctrine…
Your question “Is it fair?”, therfore conceives the next natural question….
Fair to whome?
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