Changes In Taxes Unlikely To Sink Dividend Stocks

So, if taxes on dividends and on interest rise, what is likely to be the effect? The obvious answer is the effect will be negative. The market will adjust to the fact that either investor, stockholder or bondholder will be keeping less of their income after taxes. But does that imply something like a 30 percent drop for stocks? I think not.

Yes, the shareholder will have to pay more tax on dividends, but that person still will own part of a company that is growing and able to increase what it pays to shareholders. And, even at a higher tax rate, that will remain highly likely to be superior to owning a bond. So what may happen to the stock market if the effect of an income tax increase is not simply a question of arithmetic? It remains a question in which the answer is greatly influenced by human behavior. And I will bet that lots of investors will, regardless of tax rates, still seek a rising income stream.

Source: MySanAntonio.com

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