Are Dividend Taxes Going to Kill Us? - Mike Swanson (12/05/12)

I just read this email question I got:

"mike, thanks for sharing so generously your opinions on the market! i am in metals. mlps and reits. my lowest high "dividend" stock pays about 8%. i feel that these high dividend stocks are doomed due to the coming seemingly set in stone dividend tax on high earners. what do you think? thanks!"

I don't think the dividend tax increases mean much for the stock market in the big picture. It looks as if what is going to happen is that the lower rate of dividend taxation of 15% is going to be done away with and dividends will be taxed as income. This will impact those in the highest tax brackets the most. However, I do not think it is all that important for the stock market - I don't see where someone would sell dividend paying stocks because of this for one big reason - where would they put the money?

They have no tax free alternatives except for municipal bonds, which right now pay almost zero interest thanks to the Fed's zero interest rate policies.

The truth is everyone's standard of living is going to go down one way or the other and it doesn't matter if taxes go up or whatever. The government debt is growing and so are the deficits. That means if taxes don't go up to close the deficit then the Fed will just have to print even more money and cause even more inflation. Inflation is coming anyway. Inflation and taxes are going to eat into the standard of living of Americans and there is nothing anyone can do about it at this point. This is the cost of the "war on terror", bank bailouts, and "stimulus" programs. Obamacare is icing on the cake, but the budget will never be brought under control until defense spending is reduced, because it makes up 40% of Federal spending when you include the interest paid on past wars and weapons procurements. This is the cost of empire and we are just going to have to pay it. We clapped for the wars we saw on TV and now we will pay for them. We live in a big government war state and people worship big brother so we must all pay the price. It is going to be paid by us one way or the other.

Dividend taxes are just a little detail in what is a big new trend - the lowering of the standard of living of the average American to pay for the big government war state. In return you get obamacare, some handouts, and wars to cheer for on TV. Talk of reducing taxes is useless until those three things are reduced in size or eliminated and it is probably too late for any of that, because no of importance speaks out against all three of them.

But as for the stock market as see no evidence that it is impacting the movement of the market. We seem to still be in a mature bull market poised to go higher a bit over the next few months with markets outside of the United States such as Europe posed to go up much more. And commodities and gold too thanks to QE money debt printing operations. Only thing I can do about the taxes is try to do best with my investments. It does make it so long-term investing becomes more attractive.

Also these taxes won't effect investments in most retirement accounts, such as IRAs.