On Wednesday, April 21, President Obama was interviewed on CNBC in a discussion that covered a number of economic issues. The topic soon turned to the expiring 2003 tax legislation and to my surprise, it appears that the president may be prepared to abandon his repeated promises to protect fair and reasonable dividend tax rates for all Americans.
The president’s apparent about face came when he stated that, “if you make more than $250,000 a year, going back to the tax rates that existed under Bill Clinton are perfectly fair.” When it comes to dividend tax rates, this statement runs counter to everything the president has previously said and even contradicts his own budget proposal.
Now, I fully understand that he may be talking about something different, but AGA’s long involvement in supporting reasonable dividend tax rates helps us recognize when something may be afoot.
Millions of Americans, from all income levels and age groups, own stocks that pay dividends. Senior citizens and people reaching retirement age, in particular, represent a large community of investors who own dividend-paying stocks. In fact, many seniors rely on dividend payments to supplement their retirement income.
In addition to the concern that the tax rate on dividends could skyrocket to nearly 40 percent for taxpayers in higher brackets, the recently enacted Health Care Reform legislation will subject unearned income (dividends, capital gains, interest and passive income) to an additional Medicare tax of 3.8 percent for taxpayers at higher income levels. So for some investors, their tax bill will reach nearly 44 percent.
That’s why AGA has been so supportive of President Obama’s proposed budget for fiscal year 2011 that maintains the 15-percent tax rate on dividends for most middle-income taxpayers and the zero-percent rate for low-income taxpayers. For married taxpayers earning more than $250,000 ($200,000 for single taxpayers), the tax rate on dividends is increased to a reasonable 20 percent. It’s fair, it’s reasonable and it supports the investment efforts of hard working Americans in all tax brackets.
So, when I hear President Obama talk about going back to Clinton-era tax rates in such an open-ended way, I hope I’m just overreacting and not seeing the wrong kind of change for America’s investors.