Although I don’t consider myself a tax expert, friends sometimes ask me what effect proposed tax relief would have. Lately several have asked me what effect cutting the dividends tax will have on them.
My answer is that unless they own individual stocks it will have very little effect upon them. Yes, some people will gain small amounts on their mutual funds. My wife owns about $140, 000 in mutual stocks and we would have saved $48 last year if dividends hadn’t been taxed. Since not many of my friends own that much stock outside of their retirement plans, I imagine their savings would be even less.
I doubt that a tax saving of $48 would have engendered the kind of enthusiasm we see for this particular tax cut. I suspect it is those with millions of dollars in stock investments who’ve pushed for these cuts. Spending the $48 I saved last year is hardly going to spur the economy. You don’t have to be a genius to realize that it is the rich and the super-rich who are likely to gain any real benefit from this tax break and who will, if you believe the trickle-down theory, spur the economy to new heights.
Since all of my stock is tied up in my 403b, it’s doubtful that I would see any real tax benefit at all. I imagine that most of the 50% of people who own stock, if we are to accept those Republicans statistics, own it indirectly through their 401k, 403b or other retirement programs. They will gain very little benefit, if any, from this tax cut. After all, nothing is taxed until they pull their earnings out after retirement, and then it’s all taxable, isn’t it, even those untaxed dividends.
What the tax break will undoubtedly do, though, is to push the tax deficit up, further endangering the Social Security fund and Medicare. Taxpayers might ask themselves who will rely more on those funds in the future, themselves or those who want the dividends tax eliminated?