President Obama’s 2013 budget: Dividend Rate to be 44.8%

According to the WSJ, President Obama's 2013 budget includes a proposal that will raise dividend tax rates to 44.8%. The plan itself raises the dividend tax rate to 39.6%, which when combined with a phase-out of deductions and exemptions, and Obamacare's 3.8% investment tax surcharge, results in a total tax on dividends of 44.8%. The capital gains rate will stay at its current 15% but the 3.8% Obamacare tax will apply to increase the total capital gains rate to 18.8%. The above analysis applies to individuals making over $200,000 per year and couples making over $250,000 per year.

Although the full implications of this tax increase will keep commentators busy for months, it is sufficient to note at this point that the disparity created between the tax rate on dividends (44.8%), and the tax rate on capital gains (18.8%), will create an incentive for businesses to favor the reinvestment of profits rather than the payment of dividends to shareholders. For more analysis, see the WSJ article.