Obama vs. McCain: Who's Better for Dividend Investors?

This blog rarely discusses political issues, as my goal for writing posts is to mainly educate people on investing, without trying to influence them how to spend their money or live their lives. I recently stumbled a NY Times article, which summarized the candidates’ views on dividend taxation. Most of you might remember that prior to the 2003 tax law change, which made qualified dividends taxable at the top rate of 15%, dividend income was taxed at the top marginal rate for ordinary income. The current preferential treatment of dividends is set to expire at the end of 2010. The article from Gregory Mankiw summarizes both candidates’ opinions on the subject of future taxation of dividends:

But for dividend income, Senator Obama has proposed only a modest increase in the top tax rate, to 20 percent from 15 percent. That is, the personal income tax would continue to tax dividends at a far lower rate than ordinary income. This decision must surprise many of his Congressional supporters. But it should be making President Bush smile.

In light of Senator Obama’s stand, the politics of dividend taxation may take some surprising twists. Senator John McCain wants to maintain the current tax rate of 15 percent on dividends (while cutting the corporate tax), but it is a good bet that if Senator McCain is elected president, while Congress remains Democratic, Congress won’t give the Republican president what he wants. They would instead let the Bush tax cuts expire, returning the dividend tax for high-income taxpayers to about 40 percent.

This leads to one of the great ironies of the political season. On the issue of dividend taxation, Barack Obama may be the candidate with the best chance of preserving George Bush’s legacy. 

Another positive fact if Democrats win is that the Stock Market has historically performed well under their reign according to this article from Jeremy Siegel. 

To summarize it seems that the best candidate for the president post would be Obama, if you look into it from a dividend stock investor’s perspective.

Disclosure: Author is long SPY.

Comments

[independent...:]

I don't think this article paints a complete picture. I would like to see which parties are in power in the Senate and Congress as well as the Presidents during that time line shown. Also, what were the tax codes then and the interest rates....They are all interconnected regarding
capitalism. And as far as McCain's ability to keep the dividend interest rate down, I believe he will be able to move the politicians to do the right thing for the country, and let Americans know which politicians vote for the rate increase.

2008 Sep 16 11:27 AM

[Joe V:]

It's interesting to see that Siegel chart. The first thing that jumped out at me is that almost every election the "other" party is voted in. There's always enough to not like about reality, no matter who's running the show, that the public opts for "something different".

The grass is always greener... or is it similar to market excesses, where the momentum pendulum always swings way too far in either direction, instead of just centering on intrinsic value....

Just random musings, I know not directly related to your post. Sorry 'bout that.

2008 Sep 16 07:57 PM

[tginomorebush:]

the republican leadership has trampled the grass into a massive mudhole! YES, the grass IS always greener!

2008 Sep 17 08:57 AM

[ronslim:]

The post is too narrowly constructed, ? inflation adjusted,?future programs not paid for. ? loss of freedom to spend those dividends say on tobacco or scotch.

Obama is clearly a Marxist with little executive experience. That spells Great depression in our current economy if he is elected.

2008 Sep 17 09:05 AM

[carey_jim:]

There has not been very much difference between Republicans and Democrats since about 1970, at least.

Reagan started life as an FDR New Deal Democrat but simply turned to the right along with the rest of the nation.

Today, Nixon would look like a traditional liberal and in Nixon's time Clinton would have looked like a traditional conservative as would most modern Democrats.

Most Americans today are social, political AND financial conservatives and substantial change usually only comes during times of great challenge, either natural or man-made.

I think your statistics can better be explained by other causes.

2008 Sep 17 10:10 AM

[cocomurph:]

In light of the fact that the Congress and the Fed have MUCH greater impact on the economy that any President, correlating stock market returns to who is President is about as useful as those I've seen correlating it to phases of the moon.

2008 Sep 17 11:34 AM

[limitout:]

if you want intelligent and constructive change vote democratic, if you want more of the same vote republican.

2008 Sep 17 12:22 PM

[Blair:]

Sorry, but there is a problem with the math.

Let us assume that you get $10,000 worth of dividends that are subject to taxes.

At present, you would pay $1,500 in taxes.

The so called modest tax increase to 20% would mean that you would pay $2,000 in dividend related taxes.

By any math, this would represent 100*(2,000 -1,500)/1,500 = 33% tax increase. From my point of view, a 33% increase in taxes is not modest in any stretch of imagination.

Stoyanov's political thinking is inconsistent with financial thinking. It appears that Stoyanov doesn't know when he is well off.

I will vote for McCain.

2008 Sep 23 12:59 AM

[Dividend Gr...:]

Blair,

You have the right to cast your vote for the candidate that you believe is best for you. However, your comment clearly states that you haven't read the summary comprehensively.

The article ( which is also based off a NY Times article) clearly states that Obama would increase the top income tax to 20% since he will have congressional support.
However, despite the fact that McCain has stated that he will keep the 15% tax, there is a high probability that congress might not be with him on this one - so the top tax on dividends will be much larger than the 20% rate which might happen if Obama were to be elected.

To put it in other terms, which one is better - to have your dividends taxed at 20% or at more than 20%?

2008 Sep 23 02:43 PM

[anarchist:]

What's the difference? There may not be any dividends worth worrying about.

2008 Sep 27 06:54 PM

[flamorte:]

The arguments against McCain (on this message board) assume that if he is elected, the Congressional Democratics will raise the tax on dividends more than the 20% currently proposed by Obama because a Republican is President, while on the other hand, if Obama is elected the majority Democrats in Congress will abide by Obama's currently proposal.

I don't even know what to say....

2008 Sep 27 08:46 PM

[nycDem:]

15% or 20% - what does it matter if the Republic burns?

The Republicans can vote for McCain. If he wins, they can stay in their gated communities until this country turns into a banana republic - with 1% controlling all of the wealth, and everyone else getting screwed.

And ronslim, your jab that Obama is a Marxist is pathetic. In any other country Obama's economic policies would be considered almost right-wing.

You want Marxism? Wait until enough people wake up and realize that the Republican party only PRETENDS to help the middle-class while actually screwing them over so they can transfer America's wealth to their rich buddies' tax-free offshore bank accounts.

As a member of the "investment class" I'm all for the free-market, but I sure as hell won't vote for McCain and 4 more years of criminal greed.

Obama/Biden '08.

2008 Sep 28 12:33 AM

[hoover:]

I don't believe anyone needs to panic if Obama wins. One post said Obama is a Marxist, meaning, I assume, a wholesale redistribution of wealth. I believe today's distribution of wealth is such that 50% of wealth is owned by 10% of the population. That 50% of wealth at the top 10% would probably drop to 47 or 48% under Obama, or rise to 51% or 52% under McCain in 4 years. Under a Marxist it would probably drop to 25% to 20% of wealth at the top 10%. Billionaires would still exist at the top under eithr McCain or Obama, but would be reduced in numbers and reduced to multi-millionaires under a Marxist. The current ruling elite under either Obama or McCain would be a partial rearrangement of some of the deck chairs. Under a Marxist the ruling elite would be smaller but much more powerful, the deck chairs would be different, and the ruling classes would have less aggregate money. Just some thoughts -- don't think its panic time.

2008 Sep 28 01:19 PM

[Old Rick:]

Obama (and most other Democrats) is fond of saying that he would "reverse the Bush tax cuts that benefit the wealthy the most". This does not pass the smell test after a little research as the top 1% of earners paid about 39% of the income taxes after the Bush tax RATE cuts. In 2000 the top 1% paid about 33%. In 1979 before the Reagan tax cuts, the top 1% paid around 15% of income tax collections. So after the Reagan and Bush tax cuts (with Clinton's increase in the middle) the top 1% of earners paid much more. How did the lower and middle classes fare you ask? In 1979 the bottom 40% of earners paid about 9.5% of collections. In 2006 those bottom 2 quintiles paid -4% (yes, minus). That means that 40% of wage earners are paid by the government for the privilege of living in the U.S.A. Sounds awfully patriotic to me Joe! Those still believing in Obama's 'magic fairy dust" tax plan might want to go research JFK's tax philosophy where he believed in (and did) cutting rates sharply across the board.

2008 Sep 28 06:06 PM

[My American...:]

We are drowning in michigan.... someone send us a life vest. i don't care what form it is in, but the average joe is dying here. losing their jobs, losing their lives, losing their homes and with no end in sight. do you really think we are worried about dividends on investments right now? our biggest investment is our home and it is already in the toilet. so, yes, obama's mild increase in dividend taxes sounds reasonable to me, but that is not why i am voting for him. I am choosing the candidate best able to make difficult decisions (like choosing a VP!) and inspire all of us to do what we do best-- imagine, innovate, create, and build a better America for all of us. When we come through this, there will be more money for everyone. So, my American dream is to make it into that highest tax bracket, so I can afford to give more back to the country that made me rich.

2008 Sep 29 09:08 AM