The Dividend Tax May Soar

Dividends matter, and so do the taxes on dividends. When the dividend’s tax goes up, the after-tax yield goes down. To keep the after-tax yield the same as before, the price of the stock must fall.

 

President Obama, who dislikes even those capitalists who are not rich, has arranged for next year’s tax on dividends to almost triple from 15 percent to a whopping 43.4 percent. To retired folks living on their dividends, he’s flipping the bird. 

If the tax increase actually takes effect, the stock market would probably suffer a substantial decline. 
But if the increase in the dividend tax takes effect in January, the stock market would be falling substantially now in anticipation. It is not falling substantially now. Therefore, I suspect that the dividend tax increase will be nullified after the election – retroactive to January 1 – by a newly-conservative Congress. 

Dividends matter. But then, so do elections.