Today President Obama said he wants to extend what are known as the Bush tax cuts, which expire at year's end, but only to those whom the president deems worthy.
“Although President Obama claims that his tax increases will only affect the wealthy, this looming tax grab will also have a considerable impact on middle-class Americans, even if they don't have to pay it directly,” said Dr. Merrill Matthews, resident scholar with the Institute for Policy Innovation (IPI).
Under President Obama's proposal, the dividend tax for high-income workers will rise from its 15% current rate to the new top rate of 39.6% for high-income workers. But that's not all, ObamaCare also imposes a new 3.8% tax on passive income for high-income workers beginning in 2013. Thus, high-income workers will face a 43.4% dividend tax, an tripling or the current rate.
"Does the president really think that tripling the tax on dividends won't have an impact on investment?" asked Matthews. "Obama has already created the most anti-economic growth environment since Jimmy Carter. And tripling the dividend tax triples-down on that anti-growth agenda."
Almost all Americans have pension funds, 401ks, or mutual funds with dividend-paying stocks, he said. Much of elderly Americans’ income comes from stocks and investments, and more than half of all dividend payments go to Americans over age 65, with almost 75 percent going to those over age 55. Therefore, if the president raises the dividend tax at the end of this year, all investors, especially the elderly and the retired, will be hit with new taxes from income they earn from these stocks.
"Seniors are already being robbed of a traditional source of income because of the Fed's low-interest rate policies," said Matthews. "Now the president wants to rob them of their dividends, too."
“Not all tax cuts are created equally," continued Matthews. Eliminating some of the Bush tax cuts might adversely affect some families' budgets, but they won't have a big impact on economic growth. By contrast, dividends and capital gains taxes do have a significant impact.
"What drives the stock market helps drive the whole economy,” said Matthews. “When the stock market is tanking and people aren’t investing, that affects the whole mood of the country, impacting job creation, home purchases, investment and consumer spending.”