A new tax of 3.8% on investment income would come into effect in 2013. Should these plans come to pass, it would result in nearly tripling the dividend tax rate from 15% to 43.4%.
—Bob Doll, chief equity strategist for fundamental equities, BlackRock
February 21, 2012
Turning back to the United States, we did see some political headlines last week that could have some economic and market implications. President Obama released his budget plan and is calling for deficit reduction on the order of $2 trillion. His plan calls for $20 worth of tax increases for every $1 in spending cuts, with the biggest surprise perhaps being his decision to tax dividends at ordinary income levels. His plan would effectively raise dividend taxes from their current level of 15% to a maximum of 39.6%.
In addition, a new tax of 3.8% on investment income would come into effect in 2013. Should these plans come to pass, it would result in nearly tripling the dividend tax rate from 15% to 43.4%. Of course, Congress still needs to weigh in on the budget debate and as we have seen in recent years, budget conversations can become quite contentious. Additionally, Congress last week agreed to an extension of the payroll tax cut for the remainder of 2012. In a turnaround from the trends of the last year, it was the Republicans who appeared to give in on their demands as their goal to fund these tax cuts with spending cuts were not met.
At the beginning of the year, we predicted that the GOP was likely to retake the White House in the November elections. Given the improvements in US economic growth and the divided results we have seen in the primary process so far, however, it is looking like
President Obama’s re-election chances have been improving.
