Obama Proposes Doubling Dividend Tax on Wealthy

By Richard Rubin and Steven Sloanby Richard Rubin and Steven Sloan
Bloomberg
Feb. 13, 2012

President Barack Obama’s budget plan calls for taxing dividends received by high-income taxpayers as ordinary income, raising the top rate to 39.6 percent from 15 percent as part of a $1.4 trillion tax increase on top earners over the next decade.

The proposal, in the president’s fiscal 2013 budget released today, would reverse his previous policy that called for taxing dividends more lightly than wage income. The plan would treat dividends as ordinary income for married couples making more than $250,000 a year and individuals making more than $200,000. The dividend tax proposal would raise $206.4 billion over 10 years.

“We simply can’t afford to devote $206 billion for lower tax rates for the highest-income Americans,” Gene Sperling, White House director of the National Economic Council, told reporters today. “Our system for taxing investment income for the most well-off Americans is clearly broken.”

Obama is proposing a top individual income tax rate of 39.6 percent in 2013, up from 35 percent. His budget would tax capital gains at a top rate of 20 percent, up from 15 percent. The top dividend tax rate is now 15 percent.

An additional 3.8 percent tax on the unearned income of couples earning $250,000 and individuals making at least $200,000 will take effect in 2013 as part of the 2010 health- care law. As a result, some taxpayers would pay 43.4 percent in federal taxes on their dividends next year, almost triple what they now pay.

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