Don't Worry About a Dividend Tax Hike

There are many things to get worked up about as the midterm elections approach, but an imminent hike in dividend taxes isn’t one of them. The handwringers warn that if Congress ultimately doesn’t extend the Bush tax cuts, which sunset at year-end, then top marginal rates on corporate dividends will jump to 39.6% from the current 15%. That would supposedly deal a body blow to the stock market and to the hopes and dreams of retirees and others who depend on income investing. Well, I’ve got one word of advice for you: Relax.

Taxes on dividends aren’t likely to go up that much. Even if they did, the top rate wouldn’t affect that many investors. Research shows the tax cut had little impact on most dividend-paying stocks when it was enacted, anyway. And any emotional sell-off in dividend-paying stocks as a result of a tax hike is likely to be temporary. Because the simple fact is that for yield-hungry investors, dividend-paying stocks are the best, if not the only, game in town. “This is not going to be a big deal. It doesn’t change the relative value of dividend-paying stocks,” says Josh Peters, equity income strategist and editor of Morningstar DividendInvestor.

Source: MoneyShow

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