Top Dividend Tax Rate Will Become the Highest in the World

Starting January 1 of 2013 the top tax rate on dividends in the U.S. will officially become the highest in the developed world. If you live in N.Y., for example, the top rate on stock dividends will be close to 50% - which is significantly higher than France. Capital gains tax will also increase from 15% to 25%. Many in the U.S. will of course say "great, tax those fat cats". But there are a few problems this policy.

Savers have been penalized by the Fed for holding cash and now they will be punished by the government for owning high dividend stocks. According to J.P. Morgan (JPM), this dividend tax will reduce mature firms' valuations by $1.5 trillion. Many firms will choose share buybacks instead of dividends. That hurts those who rely on dividend stream for income (such as retirees). Smaller firms will have a tougher time raising capital due to the increase in capital gains tax. That will have a direct spillover into job creation.

Source: iStockAnalyst

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