I recently shared an important piece of news with readers of my High-Yield Investing
newsletter that I think every dividend
investor should know about.
Last month, President Barack Obama tabled his $3.8 trillion budget for the 2013 fiscal year starting this October 1. The budget proposes $1.7 trillion in new revenue over the next 10 years, in part by ending Bush-era tax cuts for "wealthy" individuals making more than $200,000 in income and households earning more than $250,000 a year.
That's nothing new. In a recent article, I talked about what Obama was proposing when tax cuts approved under George W. Bush expire at the end of this year.
What is new, however, is that for the first time Obama is proposing a dividend tax rate of up to 39.6% on the wealthy. Originally, the administration had said it would raise the top tax rate on qualified dividends from 15%, where they are today, to 20% for the wealthy.
Before I go further, let me say this... It's not my intent to weigh in on the political debate, but rather to simply give you the information you need to know. Any time an important change is made to tax policy that will affect dividend investors, I feel it's my duty to weigh in to readers of High-Yield Investing -- and I think it's certainly worthwhile for other income investors to hear about, too.
Now, the new budget calls for taxing the wealthy on dividends at the same rate as ordinary income. And the budget also proposes raising the top income tax rate from 35% to 39.6%. The administration says the dividend tax increase would pump $206 billion into federal coffers in the next decade.
The proposed long-term capital gains rate (on assets owned for at least a year) for the wealthy would rise, as originally planned, from 15% to 20%. Top earners would also incur a 3.8% surcharge included in the recently-passed federal health care reform law.