President Biden wants to increase the tax on dividends. I find this a bit shortsighted; since he apparently has never invested in the stock market throughout his life (can this be true?) The value of those dividends is then an unknown entity. Not all have federal pensions from multiple government jobs.
Thus the effect of a dividend tax increase would not be limited to just the US millionaires. The Internal Revenue Service data show that some 27 million tax filers received qualified dividends in 2018, and more than half had adjusted gross incomes of less than $100,000. Another 27% had an adjusted gross income between $100,000 and $200,000.
Of the $244 billion in qualified dividends distributed in 2018, more than 14% went to taxpayers earning less than $100,000. Around 30% were received by taxpayers with incomes below $200,000, and only 40% of qualified dividends were paid to taxpayers with incomes of $1 million or higher.
The importance of dividends as a safe stream of income to my client and other retirees is widely known. Holding a share of your retirement savings in dividend-paying stocks not only allows you to increase your savings, but also protects against inflation, which is becoming a bigger threat.
The IRS numbers highlight the importance of dividends for retired taxpayers and those nearing retirement. In tax year 2018, taxpayers over 55 accounted for 60% of tax returns with qualified dividends, and nearly 80% of all qualified dividends ($193 billion) were paid to this group.
The Biden administration’s proposed increase in taxes would push firms to reduce their dividend payments, hitting the pocketbooks of the millions of Americans who rely on dividends for emergency funds or retirement savings. This doesn’t even get into the effect on capital-intensive industries such as utilities and real-estate investment trusts, which rely on dividend payments to attract the investments they need to operate.