Skip to comments.Obama's Most Dangerous Tax Hike: Savings and Investments
Posted on 12/02/2012 2:59:12 AM PST by Kaslin
President Obama proposed tax hike contains a lot to dislike, but what hasn't gotten much attention is the tax hike on savings and investments. While the marginal income tax rate will rise from 35% to 39.6% for top income-earners and small business owners, the proposed tax hike on capital gains and dividends could cause the most long-term economic damage.
That's not to downplay the rise in marginal rates. It could cost hundreds of thousands of jobs over the next few years. More universally acknowledged by economists, however, is the economic harm that savings and investment taxes do. In the Tax Foundation's analysis of President Obama's tax proposals, they found that the capital gains and dividends tax hikes will be almost five times as harmful in the long-run.
What President Obama's proposal does is treat dividends income as ordinary income for the upper-income tax rates. That means that we'd see a tax hike from 15% to 39.6% on dividends. Additionally, the capital-gains tax rate would increase from 15% to 20%.
Considering the pure size of the dividend tax hike, it might be most harmful. President Obama's former economic advisor Larry Summers, along with James Poterba, pioneered important research in the 1980s suggesting that dividend taxes constitute a form of a double-tax on corporations - one of the most harmful kinds of taxes that a government can levy.
We find that the traditional view that dividend taxes constitute a "double-tax" on corporate capital income is most consistent with our empirical evidence. Our results suggest that dividend taxes reduce corporate investment and exacerbate distortions in the intersectoral and intertemporal allocation of capital.
The coming hike in marginal income tax rates would certainly do some damage. Taxes on savings and investments, however, have the potential to do the most harm to the economy out of all the planned tax hikes.
Since more than fifty percent of Americans have investments in stocks, this would be a huge tax increase for them. Obama, of course, was lying when he said he’d never raise taxes on the middle class. But then he lies every time he opens his piehole.
For people who regularly play the stock market with a lousy $80k...it adds up in a year when you talk about dividends and capital gains. It might take two years to train people to invest in a different fashion but they will go to different strategies...maybe even shifting their money into real estate or gold...just to play this totally different.
Our Lenin wannabe won’t be happy until all assets are the property of The State, and he can intone from his podium high above the masses, “From each according to his ability, to each according to his need!”
Well, he’s a megalomaniac, and America’s Blacks did, after all, re-elect him to rob the nation blind and hand them the swag.
Trouble is, four more years of this and the U.S. will be so broke it’ll make Africa look like Fort Knox.
Is there no one to utter a word of protest; or... of rationality?
"I have not yet began to fight." When asked to surrender.
And then there are the times when he simply does not understand the script that TOTUS gives him.
What "investments"? Government doesnt invest. It SPENDS. Calling it "investment" is propaganda.
Well boo hoo. All income should be treated with a flat rate. No special rates no special deductions.
It is basic economics that those with higher incomes save and invest more than people with lower incomes who may save nothing or actually spend more than their disposable income. Raising taxes on any income level, but especially on those with higher incomes, decreases savings and investment in the economy. Adding higher taxation to these investments on top of hig]er taxes on income only compounds the problem. Obama’s Marxist economics will mean more deficits and a lower GDP. We will move from extended recession to full depression under these policies.
The author is referring to taxes on dividends and capital gains from private investment.
“Obama, of course, was lying when he said hed never raise taxes on the middle class. But then he lies every time he opens his piehole.”
That’s for sure!
I’m outraged that 0 is willing to blatantly propose tax increases, and then in order to avoid damage to the economy, spend more stimulus money!
That makes no sense at all, it’s just churning money through the ever-inefficient government, as well as picking winners and losers through central planning instead of free markets. I very much hope the Republicans will put a stop to that!
The anti-0 march on Washington DC on 0’s inauguration day is looking like a very fine idea!
I wonder when AARP will wake up and realize this is an attack on older people? I’ve saved for retirement since my first job carrying papers at 13. Now that I’m retired and living on a greatly reduced income, I count on investment income and asset liquidation to be able to travel and occasionally help my children. As a reward for my years of sacrifice by investing, my income from these sources will now be taxed at a higher rate than my other income. I guess this is a penalty for being responsible.
Oh wait then their is Teresa Ghilarducci.....
Raising the tax on savings and capital gains will result in a big drop in tax revenue. Investors will simply leave their money where it is and, thus, fail to take the gain.
Not only does that reduce tax revenue, it makes the economy less efficient as money doesn't flow as quickly out of inefficient companies to newer, more efficient ones.
Your suggestion is great class warfare, but poor economics.
I agree with you about having low rates for long term capital gains, but we need to be honest. When I buy stock (e.g., 1000 shares of McDonalds), McDonalds doesn't receive or even see a cent of that money. When I sell stock (e.g., 1000 shares of McDonalds), the money I receive comes from the buyer, not from McDonalds.
The stock buyer and the stock seller are just trading paper (money and stock). After the IPO, none of these subsequent transactions produce any funds for the issuing company.
When a person invests in a company, that investment can lose value, even a 100% loss of principal. When a person puts his money in a bank his principal with interest is guaranteed. I don’t see why both of these “incomes” should be treated the same.
Well, the return on various investments should reflect the various risks involved. The greater the risk, the greater the potential return.
By the way, it is a mistake to view putting money in the bank as anything other than an investment. If you put money into a Japanese bank, you are investing in the yen. If you put money into an American bank, you are investing in the dollar.
If you and your brother are each given an ounce of gold at the beginning of the year and your brother buries his ounce of gold in the backyard while you instead sell your ounce of gold for $ 1,700 and put that money in the bank, you are both making an investment. In a year, you can be sure that you will at least still have your $ 1,700 if it's been kept in the bank. However, in a year, your brother can be sure that he still has an ounce of gold if it's been kept in the backyard.
Which of you made the better investment? Which of you made the safer investment? You invested in the dollar and your brother invested in gold. How many dollars can you get for an ounce of gold at the end of the year? Has there been inflation or deflation? You can only tell at the end of the year.
Thinking about sending the same press release to my socialists marxist congressman who has stated publicly that he wants everyone's taxes to go up, he is advocating over the cliff tax hikes.
What can the authorities do to me? I am not even receiving the cash so we are not sheltering anything, also am going to write a big end of the year check to the Salvation Army.
A company's market capitalization dramatically affects its ability to borrow and attract new investors through additional stock offerings. The stock market really is more than a gambling casino -- companies live and die by its decisions.
Of course, a company’s market capitalization dramatically affects its ability to borrow and attract capital, but an increase (or decrease) in the volume of transactions in its stock does not imply an increase (or decrease) in the company’s market capitalization. A tax policy which might increase the volume of transactions in a stock will not necessarily raise or lower a company’s market capitalization. High volume can accompany both increases and decreases in a stock price.
I didn't say anything about high volume. High volume is more a product of monetary inflation. In my opinion, it has little to do with tax policy.