Tax Rates On Dividends Are Going To Explode, And The Market Is Punishing Dividend Stocks

Business Insider ^ | 05/08/2012 | Joe Weisenthal

[SeekAndFind]

If you haven't seen it, here's an eye opening chart from Goldman's Alec Phillips:

Goldman Sachs

For top earners, the tax rate on dividends is going to hit 43.4% if there are no changes in the current law.

There are many layers to this whole "fiscal cliff" drama. The spending cuts are just one, but the potential hits to the economy are numerous, and this is just one example.

Ultimately, says Philips:

The most likely scenario in our view is an extension of these investment-related tax rates along with other expiring tax provisions into mid-2013, at which point broader reform legislation might be enacted. Over the longer term, the risk is clearly in the direction of higher rates on capital income, since tax rates on capital gains and dividends are at historical lows, the Obama Administration has withdrawn support for preserving preferential rates on dividend income, and a new 3.8% tax on passive income is likely to take effect for some taxpayers in 2013 regardless of what Congress decides on the "fiscal cliff."

Meanwhile, Dan Greenhaus at BTIG, in his latest note, also touches on the dividend issue.

Companies are jacking up their dividends left and right. Both Exxon and Intel just had hikes, and of course Apple joined the ranks of the dividend payers.

But thanks to the above, the market isn't valuing dividends as highly as they were:

[shalom aleichem]

The staggering result of all this is not just rates double BUT revenues explode and no spending cuts promised. Government gets a huge windfall (until everyone gets smart and renounces their USA citizenship or goes broke)

[Jack Hammer]

The Idiots in Washington will stop at nothing in their efforts to expropriate ALL America’s wealth in order to slake the bottomless thirst of the indigent for booty in exhange for their votes, until the economy comes crashing down in a stinking heap of poverty and revolution.

No one has learned anything at all from the many examples of the Twentieth Century.

[piytar]

I disagree. The wannabe rulers on the left WANT revolution. They think they’ll win and turn this nation into more than a defacto dictatorship, which it already is.

They may be right.

[Axenolith]

Revenues never “explode” when tax rates rise.

[shalom aleichem]

Right. But if they retroactively taxed sub S corps, such as O would in the lame duck session in November, December and half of January 2013 then they’d ruin small businesses and get a burst of enhanced revenues, but after that it would be dismal in more ways than one.