“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.”
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“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.”
“ASI urges Congress to reject proposals that will increase the tax rates on dividends and capital gains. Research suggests that higher taxes on dividends in particular will negatively impact seniors, middle-class families and workers, even if the tax increases are targeted at high-earners.”
MarketWatch: Biden’s plan to raise capital-gains taxes on the rich is good politics but bad economics
“A brilliant political move does not equate to a brilliant economic one. If you believe that taxes have an impact on individual economic behavior, then you cannot ignore how an almost 100% tax increase might change an investor’s actions and create ripple effects throughout the economy.”
“As former Federal Reserve Governor Larry Lindsey explains nearby, a 43.4% federal rate will cost the government money. The Congressional Budget Office says the revenue-maximizing rate for capital gains is about 28%. Other economists say it’s lower, and many think the ideal rate is zero.”
The increase stands to affect “a lot more people than people realize,” according to Jeffrey Levine, chief planning officer at Buckingham Wealth Partners. “It’s not the clients that make a million dollars or more every year that you need to be worried about,” he explained to ThinkAdvisor
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.