Future Dividend Taxes

[ericd1]

Interesting article in Forbes April 26 issue about "They're Clipping Your Dividends" on page 10

 

In January 2011 the current personal U.S. Federal 15% tax rate on dividends will expire, subjecting them to 'ordinary income' tax rates.

 

At the same time the max rate jumps from 35% to 39.6%.

 

Again in 2011 there's a limit on deductions that amounts to adding 1.2% to each marginal rate.

 

Then in 2013 a surtax on investment income tacks on 3.8%

 

So today's 15% rate jumps to 44.6% in 2013. WOW!

 

The article suggests selling high-yield securities because they will soon come under selling pressure and then use some single stock futures to buy them back...I think investors looking to benefit from high-yield securities will need to hold them in tax-favored accounts and not in taxable accounts.

 

Any possibility of Congress extending the 15% rate?

 

Appreciate your comments...

 

 

[Guest misterstockwell]

No chance that THIS congress extends the 15% rate--that would not do anything to redistribute the wealth!

 

After the November elections, perhaps some sanity will return and the rates will be reconsidered.

[Myth465]

These tax cuts have done nothing but wrecked the financial budget and enriched a few investors such as ourselves. They need to expire.

[Guest misterstockwell]

These tax cuts have done nothing but wrecked the financial budget and enriched a few investors such as ourselves. They need to expire.

 

You are joking, right?

[ERICOPOLY]

Next buybacks will be banned as tax evasion.

[Guest Bronco]

Assuming the 44% figure is true (and forgetting state tax)...a corporation earns $100.

 

Corp pays tax of $35 in U.S. - leaving $65

 

 

Corp pays all of $65 as dividend.  Individual taxed at 44%, leaving $37.

 

Corp earns $100, owner gets $37, government gets $63.  This is an outrage.

 

This will of course force companies to lower dividends.  As a poster mentioned, buybacks will be all the rage - we saw how well that worked out the past 5 years (hint - it is a form of leverage).

 

The U.S. government - the hits keep coming!

[Myth465]

1. Im not joking. I agree with Buffett on this and look forward to paying my fair share when / if the time comes.

2. Very few Corporations pay that top tax rate.

 

The richest man in the world said there is a taxation war going on and his side is winning. Do you really think he was joking. Or does the buck stop at investment advice.

 

Given all that I would be for cutting the corporate rate, removing some loop poles, simplifying the whole thing, and increasing collection efforts and enforcement.

 

http://www.taxfoundation.org/news/show/23561.html

http://www.smartmoney.com/investing/economy/high-corporate-tax-rate-is-misleading-22463/

 

-----

 

Everyone wants balanced budgets but no one wants to pay.

 

The middle class is tapped out, someone is going to have to step up to the plate. Double taxes be damned, we are all double, triple, and quadruple taxed via all types of ways. Payroll, Income, State, Local, Federal, Sales, Fees, Assessment, Property, ect. Who said income was only meant to be taxed once. Yes I know Stalin is smiling in heaven and the world will fall apart because the rich who keep the country going will all move to China, but it is what it is.

 

Buybacks were the rage when the rates decreased. My guess is life will continue and a few portfolio allocations will change. Thats about it.

 

http://www.bankinvestmentconsultant.com/news/quinnipiac-hnw-wfcg-2666476-1.html

 

Investment income shouldn't in my opinion be taxed at lower rates than earned income.

 

A subsequent study released last week indicated that over the past half-century, America’s wealthiest taxpayers have seen their tax outlays, as a share of income, drop by as much as two-thirds, while taxes for middle-class Americans have stayed the same at the federal level and increased slightly at the state level. The group that commissioned the study,  Wealth for the Common Good, is an organization comprised of high-net worth individuals and business leaders.

 

“What we found was that after a half a century of Presidents talking about tax cuts and tax reforms that the middle class pay the same as they did in 1960 whereas the richest one percent pay half of what they in 1960. And the richest 400 households pay two thirds less,” said Chuck Collins, an author of the report, co-founder of Wealth for the Common Good, and a senior scholar at the Institute for Policy Studies.

 

According to the study, if the top 400 wealthiest Americans paid 51% in just 2007, they alone would have paid $48 billion. Indeed, Bush-era tax cuts for the wealthy have cost the Treasury more than $700 billion, with all of these billions added directly to the national debt. Retaining the tax cuts will cost the country $826 billion over the next decade.

[Guest kawikaho]

These tax cuts have done nothing but wrecked the financial budget and enriched a few investors such as ourselves. They need to expire.

 

I wholeheartedly agree.

[ERICOPOLY]

You agree with Buffett.

 

And how much dividend does Buffett collect on his Berky shares?

 

Is he going to get rich at a slower rate with a higher tax?

 

No.

 

The other thing people will do is put their millions into variable annuities which are effectively mutual funds that compound tax-deferred like IRA accounts.  There are no restrictions on contributions.     

[Guest misterstockwell]

Wealth for the Common Good, which represents many of these individuals, was organized to help rebalance our economic system. Our goal is to contribute to the public debate on taxes and support President Obama and Congress in creating a more progressive tax code.

 

Socialists

[beerbaron]

If I'm not mistaken In Canada.

 

Banks Interests are taxed as 100% income

Dividends are taxed at 50% as income

Capital gains are taxed at 33% as income

 

So the little guy who knows shit and gets Customer Deposits actually gets 0% real return if not negative.

The savvy guy, buys an Medium Term Gov Bond ETF and gets taxed half the amount, giving him maybe 2% real return plus the liquidity.

 

It really sucks, 99% of people don't optimize their taxations because they just don't know. Why not make it equal for every income types? It just does not make sense.

 

BeerBaron

[ERICOPOLY]

In Australia the corp only pays 30 in tax on that 100 of earnings and the individual then only pays 2.70 in tax.

 

That leaves 67.30 in earnings for the owner.

 

Australia is not the one with the budget crisis.  They have better social programs too.

[hyten1]

i am with the came as tax as minimum as possible, now the question is what is the right amount

 

i am already paying 50% of my income to the gov, when does it stop?

 

i believe in:

 

1. cut spending

2. spend wisely

3. cut more spending

4. spend every dime wisely

5. last resort raise taxes

[hyten1]

i just don't quite understand when someone push for more taxes whenever there is a budget deficit

 

I think everyone would agree with:

 

1. gov doesn't spend money very wisely or efficiently

2. why does gov worker still have these nice pension plans, awesome vacation plans etc. I know many people who work for the gov where the retirement age is 55. after 55 they are set for life. how can this be?

 

Like i said:

1. cut spending

2. spend wisely

3. cut more spending

4. spend more wisely

 

I don't disagree with buffett that investment income should be tax at the same rate as regular income. But people seem to forget, there is another way to make that the case, that is to lower the personal income.

 

h

[mountboney]

"Corp earns $100, owner gets $37, government gets $63.  This is an outrage."

 

I wholeheartedly agree.

[ERICOPOLY]

Suppose you have one billion dollars and nothing else.  And it is all in Berkshire shares and nothing else. You never pay taxes if you spend 1m a year and finance it with margin loans. The scale is such that your margin debt will not be a risk.

 

If you suggest cutting corporate tax Myth, then people will still find a way to completely avoid tax.

[Guest kawikaho]

Speaking of taxes, the following is a list of all the major tax delinquents in California.  The total sum owed is over $1.2 billion.  Some of the folks on this list are CEOs, celebrities, athletes, doctors, general assholes:

 

http://www.ftb.ca.gov/individuals/txdlnqnt.shtml

 

We're all bound by a social contract to pay taxes.  If you don't like it, you should move to a more tax friendly country instead of acting like a parasitic leech or complaining like one.

[Myth465]

Socialists

 

This is not a very useful response. Childish name calling is the reason why our political system / discourse is in the tatters. Luckily this inst the 70s and socialist doesn't quite have the ring to it is used to.

 

You agree with Buffett.

And how much dividend does Buffett collect on his Berky shares?

Is he going to get rich at a slower rate with a higher tax?

No.

The other thing people will do is put their millions into variable annuities which are effectively mutual funds that compound tax-deferred like IRA accounts.  There are no restrictions on contributions.      

 

Doesn't Buffett receive the bulk of his actual income from Dividends in his personal portfolio. Doesnt he pay a lower tax rate than his secretary. Arent his Berkshire gains unrealized thus not subject to taxation. Buffett will never pay taxes on these holdings, he has choosen to donate them to a charity thus avoiding taxation.

 

You can compound wealth in the same manor and your unrealized gains will continue to compound tax free. We are talking about income not wealth.

 

----

 

If you want these tax cuts. What taxes do you want raised? Let me guess, anything that doesnt effect you. What expenditures do you want cut. Let me guess anything you dont really use or care for. Lets raise taxes on the middle and see what cash strapped Joe and Jane six pack cut from their budgets to pay said taxes. Then lets see the paradox of thrift rip waves through Corporate income statements and balance sheets. Then let me know if your Corporate dividends arent cut. Let me guess cutting these taxes will simply trickle down and the economy will take off.

 

Again why should you live off your dividend income at 15% while Joe and Jane 6 pack pay 25% on their earned income. Thats the question. But alas its easier to talk about the principles of double taxation and call me an anti free market comi socialist. Everyone wants a tax break.

 

I understand where you guys are coming from but lets cut the bullshit and just call it what it is. Greed, its not a bad thing. You cant have a market without it and fear.

 

----

 

 

The Government is letting fair too much Corporate / Personal tax slip through the cracks. Im for simplifying the code and lowering the rates on the Corporate and Personal side for that matter. I still want a progressive tax and I dont think investment income should receive a lower rate. Most of the budget shortfall is due to the fall in the economy. If this is done then I would also like to see actual enforcement of the Corporate Tax code. Tell the IRS Director he can hire who ever he wants, but the US Government must get a 50% return on incremental costs.

 

Revenues are down, expenses are up. I dont think there is much in the budget you can honestly cut without all hell breaking loss. If you care about the future of the country then all options need to be on the table. Taxes need to go up, military and entitlements need to be rationally cut. Americans need to make decisions instead of having thier pie and eating it too. Even the great conservative savior that Repulicans have a permanent hard on for (Reagan) raised taxes 6 times.

 

When my money aint covering my expenses. I cut spending and try to get a raise.

[Myth465]

Suppose you have one billion dollars and nothing else.  And it is all in Berkshire shares and nothing else. You never pay taxes if you spend 1m a year and finance it with margin loans. The scale is such that your margin debt will not be a risk.

 

If you suggest cutting corporate tax Myth, then people will still find a way to completely avoid tax.

 

Why do you come up with these crazy scenarios. Loans arent taxable. You can borrow 1 billion off a credit card and never pay it and that income will never be taxed. So what.  You could just borrow $1 million from a bank without the shares and it wouldnt be taxed. We are talking about income.

 

Honestly you should be the last one complaining. I am sure you will find an ingenuous way to avoid paying this tax. If you do, shoot me a PM. I may need the advice if ATSG keeps going up.

[ERICOPOLY]

Buffett is talking a shell game.

 

Look, low tax rate under shell #1 compared to my secretary.

 

He has fooled you because the bulk of his earnings are taxed at 35% under shell #2 which is Berkshire.

 

It's a word game that plays well in the media.

[ERICOPOLY]

The best solution I can think of is a value added tax. It taxes people in proportion to their lifestyle and encourages them to send less to the landfill.

 

We would be getting environmental benefits in addition to simplicity.

 

Even a 50% dividend tax wouldn't touch men like Buffett much because he so cleverly manages it like a shelter from individual taxation. 

 

[Myth465]

Eric you have to learn the difference between income and wealth. The difference between unrealized and realized gains. Income is taxed, wealth generally not unless you die. Buffett lives off income.

 

Buffett lives of the salary from Berkshire, and the dividends on his personal portfolio. Thats whats taxed. Its more than you or I probably make and its taxed at 17% or so. The Buffett shares have never been taxed and will never be taxed. They have never been sold.

 

You can do the same with your unrealized gains. Are you advocating taxing unrealized gains. I have never met someone who wants to tax unrealized gains - left, right, green, blue, or red. They are unrealized.

 

I can see why you would like a VAT its highly regressive. I dont like a VAT, they will introduce it  and keep all other taxes and it falls heavily on the poor / middle. Everyone will be worse off.

 

Interesting report  from the Hillary Clinton fundraiser last night:  Warren Buffet complained that he paid a 17.7% tax rate on his $46 million of taxable income in 2006, while his employees paid an average 32.9% tax rate (his receptionist's tax rate was 30%). 100k of that is from Berkshire - Where do you think the rest comes from?

 

How can you talk about double taxes then make several posts complaining about unrealized gains not being taxed.

[ERICOPOLY]

The dividend is a distribution of the owners' post-tax earnings.

 

Why doesn't Buffett's secretary pay a dividend tax when she withdraws her already-taxed earnings from her account?

 

 

[Myth465]

You are right she doesnt pay a dividend tax.

She pays property, payroll, sales, state, county, and other taxes.

 

Where did people get the idea that money is taxed once, and any more would be a moral sin. I guess a man has to sleep at night, and just saying I dont want to pay cause I want to keep the cash in my pocket to compound it doesnt aid in that process. Its sounds much better to say this is double taxation and I am not going to take it anymore.

 

Also there are plenty of legal structures an owner can use to avoid double taxes. Corporations choose to be corporations. They have all types of options which eliminate double taxation.

[ERICOPOLY]

I'm not complaining about unrealized gains not being taxed, I'm pointing out that companies that retain earnings win the class war just as handily.

 

You point out that the VAT is highly regressive but then so are dividend taxes.  People will only hold enough income paying stocks to fund their spending needs, and then put the rest in vehicles like Berkshire or is they own their own business they will just retain the earnings.

 

They will pay the same as under the VAT if managed correctly.  They are both regressive.