This blog rarely discusses political issues, as my goal for writing posts is to mainly educate people on investing, without trying to influence them how to spend their money or live their lives. I recently stumbled a NY Times article, which summarized the candidates’ views on dividend taxation. Most of you might remember that prior to the 2003 tax law change, which made qualified dividends taxable at the top rate of 15%, dividend income was taxed at the top marginal rate for ordinary income. The current preferential treatment of dividends is set to expire at the end of 2010. The article from Gregory Mankiw summarizes both candidates’ opinions on the subject of future taxation of dividends:
“But for dividend income, Senator Obama has proposed only a modest increase in the top tax rate, to 20 percent from 15 percent. That is, the personal income tax would continue to tax dividends at a far lower rate than ordinary income. This decision must surprise many of his Congressional supporters. But it should be making President Bush smile.
In light of Senator Obama’s stand, the politics of dividend taxation may take some surprising twists. Senator John McCain wants to maintain the current tax rate of 15 percent on dividends (while cutting the corporate tax), but it is a good bet that if Senator McCain is elected president, while Congress remains Democratic, Congress won’t give the Republican president what he wants. They would instead let the Bush tax cuts expire, returning the dividend tax for high-income taxpayers to about 40 percent.
This leads to one of the great ironies of the political season. On the issue of dividend taxation, Barack Obama may be the candidate with the best chance of preserving George Bush’s legacy."
Another positive fact if Democrats win is that the Stock Market has historically performed well under their reign according to this article from Jeremy Siegel.
Full Disclosure: I am long SPY
On Dividend Taxes, It’s a Post-Partisan Race
By N. GREGORY MANKIW
Published: September 6, 2008 , http://www.nytimes.com/2008/09/07/business/07view.html?ei=5124&en=4714b7da11d86f01&ex=1378440000&adxnnl=1&partner=permalink&exprod=permalink&adxnnlx=1221315125-xfacfrNaNW0XP7yy6GDBAQ
Are Republicans or Democrats Better for the Stock Market?
By Jeremy Siegel, Ph.D.