Along with death and taxes, we can always count on changes in tax laws. Just when you think you finally know everything you need to know about current tax laws, there's more.
With Republicans calling the shots in Washington, there are many changes afoot, and some of them relate to taxes. For example, the Bush administration is considering overhauling dividend taxes. This may not help the average American much, but it could make a big difference to some of us individual investors.
To back up a bit, the double taxation of dividends has long irked many people. Companies pay taxes on their earnings, and then pay out dividends from what remains. Investors who receive those dividends then count that money as income, subject to income taxes. A further aggravation is that, while the long-term capital gains tax rate you'd pay on appreciated stock is no more than 20%, income tax rates that apply to dividends approach 40% for the wealthy.
Just what the Bush administration will end up doing remains to be seen. It may ease or eliminate taxation of dividends for corporations or investors.
The rationale for easing dividend taxes is that it will boost the economy, but as with so many economic issues, economists and politicians are divided on the matter. Some see a massive looming deficit and worry that the current proposals (of which dividend tax cuts are just a part) are too expensive. Others believe they help just the wealthier half of America and favor alternatives, such as a payroll tax cut that would apply to many more workers.
Keep an eye on what your representatives in Congress are doing for you -- and don't forget that you can (and should!) give them a piece of your mind now and then.
