Wall Street Journal article:
"One buried surprise in President Obama's 2013 budget is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets.
Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8% -- nearly three times today's 15% rate.
Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%."
I assume mREITS are going to be taxed the same as in 2012, even if this new div tax situation were to kick in. Basically, we are taxed on 90% of the REIT income which is effectively passed to shareholders, so our taxes we owe on distributions from RSO would be according to the tax bracket we fall into with our personal income, correct? This is assuming, of course, that RSO distributions are REIT taxable income not ROC. Maybe this is why mREITS are showing more strength with their current high yields which look relatively more attractive than new possible taxes on regular C-Corp dividends.
That was from a February 2012 article speculating about what might happen in 2013. There is not yet any planned phase out of deductions, for example. That was a campaign issue and remains unset and may not happen.
At this point in time the special tax rates on long-term gains and qualified dividends will expire on December 31, 2012. Starting 2013, the tax rate on long-term gains will be 20% (or 10% if a taxpayer is in the fifteen percent tax bracket). Also starting in 2013, the distinction between ordinary and qualified dividends will disappear, and all dividends will be subject to the ordinary tax rates.
That could, of course, change if Congress changes it. I expect that we are most likely to see that dividends will be taxed at the taxpayer's ordinary tax rate.
The Obamacare tax is not well understood and there's a lot of sloppy talk about it going around. It is a 3.8% medicare surcharge on some investment income from some taxpayers.
For purposes of this tax investment income is defined to include taxable interest and dividends, long and short term capital gains, annuity income, passive rental income and royalties.
Distributions from pensions and other retirement accounts are not considered investment income.
The 3.8% tax is assessed on the smaller of taxpayer’s net investment income or the amount of Modified adjustment gross income in excess of a threshold amount. The threshold modified AGI amount is $200,000 for single filers and $250,000 for married joint filers.
Most taxpayers modified AGI is less than $200,000 single or $250,000 married joint and this tax won't effect them. For those who are above those levels the 3.8% tax may kick in. So if you are above that threshold and have $100,000 in investment income then your tax would be $3,800.
Couple of things to think about here. First, it is highly unlikely they will go that high, likely they will go up, buy unlikely that much. Second, no adjusted gross income level is spoken of here, if they do go up, it is likely they will go up on people in the $250K agi and above bracket.
I think it is stupid, but see that rates could go up a little and still be very much an incentive, jmho, I am betting that they do go up, but not as much as this proposal and they go up on couples making $250 agi or more.....also remember a lot of the assets in the market are 401K or IRA tax free accounts....so that kicks them out of a raise instantly......again, I think this is stupid an unnecessary, when we have a spending problem that is 10x bigger than any "revenue" problem......but then again, it is simple common sense that says when you spend too much you first have to cut back on spending, something that seems to be lacking in washington and most of the sheeple populace in this country now.........there is a premium for people smart enough to use common sense, imagine that?
I think that is why we haven't seen a huge sell off in div stocks, because it seems the market doesn't think they will go up to a point where people won't seek dividend income. Remember, most middle class and retirees living off dividend income don't cross the $250k level, so I don't believe most people will be affected too much by this. Alas, I could be deceiving myself in being hopeful they don't go up too much on most people, but I am planning on them going up, even some for middle income investors, though not enough to be punative.
If you think a tax on people making over 250k doesn't affect you, then you must be an Obama voter. The only way unemployment rates go down from now on will be because people are falling off the rolls and aren't counted anymore. Watch and learn, watch and learn.