The End of the World? Not Really, but Still Not a Good Idea

By August 18, 2010Economy, Taxation

Allan Sloan has an op-ed in today’s Washington Post claiming that tripling the rate on dividends won’t traumatize the stock market.  He cites a few apples to oranges comparisons about the market during Bush’s presidency and the market during Obama’s presidency.  Then he says this: “I don’t want to pay higher taxes, especially on my investment income. Who does? But I don’t think that the world will end — or that my investment portfolio will be vaporized — if rates on investment income rise.”

Allan, when you’re right, you’re right.  You got me.  I don’t think that investment portfolios will be vaporized and I also do not think that the world will end.  In fact, for wealthy investors like Allan Sloan, he’ll probably just tell his high priced investment advisor to “move things around a bit. Mix up the old portfolio.”  But, there are others who will not quite be as lucky.

For example, when dividend payments go down, as they are likely to do (they rose dramatically in 2003 when the tax went down to 15 percent), retirees who live off dividend payments and don’t have high priced investment advisors will just have to do more with less.  Since a substantial portion of 401ks and IRA’s are invested in dividend earning stocks, those who are near retirement will see their portfolios decline.  Dividend paying stocks will once again be at a significant disadvantage to growth stocks, creating an imbalance in the market.

But, is it the end of the world?  No, not really.  But is it where we want to be in this economic environment?  Nope, not really.

Leave a Reply