Director of Federal Tax Policy
Yesterday’s Wall Street Journal editorial warns of “the likelihood that the Senate budget resolution dividend tax rate of 39.6% will become law next year. The millions of Americans who receive dividend income — most of them not rich — need to begin adjusting their investment strategy accordingly.”
The “not rich” millions can put down their phones. The Senate budget resolution assumes that for middle-class filers, the dividend tax rate will remain as it is today: zero for people in the 10 and 15 percent brackets (i.e., the large majority of filers) and 15 percent for all other couples whose income is below $250,000 (or below $200,000 for singles).
To be sure, the budget resolution does assume that the dividend rate would return to 39.6 percent for people above the $250,000 threshold. But that’s the same rate that prevailed during the 1990s, when people at the upper end of the income scare did rather well. Between 1993 and 2003 (the year that today’s lower dividend rate went into effect), average after-tax incomes increased by more than twice as much for the top 5 percent of households as for Americans as a whole.