By Jessica Chau
Mostly news about the fiscal cliff today. We feature some good graphical depictions of the looming tax increases and spending cuts to help us see how they compare to each other, a discussion of dividend rates if we were to go over the fiscal cliff, and a piece speculating on how Congress may handle the tax increases and spending cuts after the election.
NPR, Jacob Goldstein and Lam Thuy Vo, 9/20/2012
If recent experience is any guide, things will probably start to get crazy as the deadline approaches, and Congress will move at the last minute to block some of the tax increases and spending cuts.
Before things get crazy, let’s take a quick look at the numbers for fiscal year 2013.
Here’s a breakdown of the tax increases.
U.S. News, Marc Lichtenfeld, 9/21/2012
What if there was a fiscal cliff and no one fell off of it?
With stocks at their highest level in four years, some pundits, bears and politicians claim that stocks will certainly plunge if the Bush-era tax cuts are allowed to expire on January 1, 2013.
The current tax rate on dividend payments and capital gains is 15 percent. Should the tax cuts expire, dividends and capital gains could be taxed at ordinary income rates. That could be particularly troublesome for retirees who receive a sizeable amount of income from dividends. Those individuals could go from paying 15 percent to over 40 percent depending on their tax bracket.
That’s what is causing some pundits to call for the end of the dividend stock bull market.
In the current low-interest-rate environment, dividend stocks have been white hot. Everyone is searching for yield, so much so that anything with even a little extra return is trading at a premium.
So it’s logical to assume that if an investor’s taxes are going to go up by 100 percent (or more), he’s going to dump the investment in favor of something more tax efficient, or investments that don’t have the same amount of risk. After all, if the net (after taxes) reward is suddenly smaller, it doesn’t make sense to take the same amount of risk.
Only it does.
CNN, Ted Barrett, 9/21/2012
Lawmakers have said for months that no decisions on taxes, spending and entitlement reform can be made until after voters do their job on Election Day and decide who will control the levers of power at the White House and on Capitol Hill.
“Elections matter,” said one top Senate aide involved in bipartisan efforts to come up with various contingency plans depending on the outcome of the presidential and congressional elections.