DECEMBER 12, 2012
Retirees will be hurt most by dividend tax hike, says AMAC
‘Even if you don't own dividend paying stock directly, income from other supplemental investments could be sharply reduced.’
BOHEMIA, New York – Older Americans - particularly lower income seniors - need to brace themselves for a potentially sharp drop in earnings in 2013 if President Obama has his way and hikes taxes on dividend income, according to Dan Weber, president of the Association of Mature American Citizens.
"Even if you don't own dividend paying stock directly, income from other supplemental investments could be sharply reduced."
Dividend taxes will rise from 15 percent to nearly 40 percent under the administration's current proposals "under the guise of forcing the rich to fork over more of their earnings to fund the government," Weber said. "The only problem is that it's the nation's retirees who will suffer most of all."
According to analysts, nearly half of seniors aged 65 and over receive dividend income to supplement retirement benefits. A Federal Reserve survey of consumer finances shows that retirees earning as little as $29,000 a year depend of dividends for 11 percent of their earnings and those earning between $30,000 and $49,000 a year rely on dividends for as much as 14 percent of that income.
"So, it's not the rich who will suffer, it is those who can least afford the new taxes. In addition, if companies start relying on traditional solutions to higher dividend taxes, they will begin reducing their payouts. Again, it is those living on fixed incomes who will feel the pain," Weber pointed out.
"Investors in the higher brackets will, in fact, benefit because, by reducing and/or cutting dividend payments, the valuation of the stock they own will likely increase. Bear in mind that rich investors can wait for the valuations to increase while the seniors who own the same stock need the quarterly dividend checks to sustain their lives," he explained.
How far reaching will a rise in dividend taxes be? According to a new Ernst & Young study for the Edison Electric Institute released earlier this week: "Raising taxes on dividends would harm every American who owns dividend-paying stocks, as well as anyone who has an interest in a mutual fund, 401(k) plan, pension plan, or life insurance policy that invests in those stocks."