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Proposed Capital Gains Tax Increase

                        The Cash Has To Come From Somewhere...
 
            We hope you were doing something fun last Saturday night and not watching C-SPAN, but if you were doing the latter, you know that the House of Representatives passed a bold healthcare reform package. Not surprisingly, this bill is a mess and since it is going to require significant expenditures, that cash has to come from somewhere and it might as well be taxpayers, at least in the eyes of Congress.

 
            To pay for the healthcare bill, the House is proposing a 5.4% surtax on those earning $500,000 a year or $1 million for joint filers. The House is hoping this will raise more than $460 billion to help cover the cost of the healthcare bill, which could wind up with a price tag of $1 trillion. This tax increase, if passed, would represent the largest capital gains tax increase since 1986.

 
            Currently, capital gains, which includes dividends, are taxed at 15%. With no signs that the Bush tax cuts of 2001 and 2003 will be renewed, the capital gains tax will rise to 20% on January 1, 2011. Add in the new House proposal, and dividends will be taxed at 25.4%. That's a massive tax increase on dividends in very short amount of time.

 
            The folks behind this tax proposal should study some history. When the capital gains tax was raised in 1986, capital gains collections by the Treasury Department DECLINED. It was 1996 before those receipts resembled their 1985 levels. Conversely, capital gains collections have risen since the Bush tax cuts.

 
            In other words, capital gains tax increases chase investors out of the market and do NOT result in more money for Uncle Sam. It doesn't matter that this tax hike is aimed at top earners. If fewer people are buying stocks that makes it harder for stocks to rise in price and that hurts all investors.

Jim Trippon, best-selling author and editor of China Stock Digest (Dow Jones #1 rated China Stock newsletter), & Dividend Genius (53% Valuation Gain & 9% avg Dividend Yield YTD) is available for interview by contacting Kelley Damiani at
1-800-952-1099 or by email at pr@trippon.com