“The capital-gains tax increase meant for the ultrawealthy could have a substantial impact on the retirements of middle-class business owners.”
news & studies
MarketWatch: How the new and higher taxes that Biden and Congress are pushing would hurt stock investors and consumers
“[These proposals] ignore the compelling rationales for special treatment of capital gains in the first place. For one, capital gains are fully taxed while capital losses are not fully deductible. And capital gains are not adjusted for inflation to reflect their real value but levied on nominal increases in price. Above all, under U.S. tax law, capital gains received by shareholders from corporate profits have already been taxed once at the corporate level.”
“Whether one considers the Biden Administration proposals or the proposals made under the current budget reconciliation process, the U.S. capital gains rate would be the worst among OECD and BRIC countries, or just shy of that unenviable crown. Economic models and history all reach the same conclusion: significantly increasing taxes on capital gains result in significantly less capital investment, harming American growth, competition, and innovation.”
“If Congress does not reject a dividend tax increase, seniors, who receive more qualified dividend payments than any other group, will see their dividend income reduced.”
“Ireland is the only other developed nation to levy a higher tax on investment income – 51% on dividends. But when it comes to capital gains, the U.S. would claim the highest top rate.”
“The Biden administration has released a flurry of tax proposals, including a headline-grabbing tax hike on capital gains that would apply retroactively from April. Dividends would be subject to the same treatment, according to a recently released Treasury Department document. At first sight, it is easy to be distracted by the $1 million figure and surmise that only rich people will be affected, so who cares? But the harms go further than that.”
Ernst & Young: The Beneficiaries of the Dividend Tax Rate Reduction: A Profile of Qualified Dividend Shareholders
25.4 million tax returns included qualified dividends in 2009, representing $123.6 billion of qualified dividends.
The tax returns with qualified dividends have the following profile:
*63 percent are from taxpayers age 50 and older,
*32 percent are from taxpayers age 65 and older,
*68 percent are from returns with incomes less than $100,000, and 40 percent are from returns with incomes less than $50,000.
The double tax on corporate profits discourages productive capital formation, encourages debt finance, discourages investment in the corporate sector and discourages dividend payouts.
This analysis argues that the rates on income from capital investment should be kept low, because it is an important element of the kind of broader tax system we need: one that attracts and encourages capital investment, rather than reducing investment options by raising the cost of capital.
EY: Corporate dividend and capital gains taxation: A comparison of the United States to other developed nations
This report notes that high integrated tax rates on dividends and capital gains could increase the tax bias against equity financing and discourage investment in the corporate sector.