Signs Of Collapse Imminent: Fiscal Cliff, Income Cliff, Obama-care On The Horizon, Student-Loan Delinquencies Now Surpass Credit Cards, 2 Million May Lose Jobless Benefits By Next Month, And The US Dollar Is Dying
November 28th, 2012
Worried About ‘Fiscal Cliff’? Look Out for ‘Income Cliff’
While everyone wonders whether we’re about to go over the “fiscal cliff,” owners of dividend-paying stocks are bracing for what some are calling an “income cliff.”
Those who have been counting on dividends as income — often retirees but also higher-end retail investors — could see their tax burden nearly triple if the worst of the “fiscal cliff” is realized.
That will happen if the warring parties in Washington fail to reach agreement on the series of tax increases and spending cuts set to take effect on Jan. 1.
For dividends, it will mean taking the current 15 percent preferential taxation rate all the way up to ordinary income, currently set at 35 percent for top earners but ready to jump to 39 percent if “cliff” talks fail. (Read More: Obama: Let’s Get Fiscal Cliff Deal Before Christmas)
Add on the 3.8 percentage point surcharge for the Obamacare health insurance expansion and those holding dividend stocks stand square in the crosshairs, in danger of getting slammed by an “income cliff.”
“Investors are very much mistaken if they think that they have the opportunity to kick the can down the road like politicians do,” said Erik Davidson, deputy chief investment officer at Wells Fargo Private Bank. “Investors, particularly wealthy ones, face a higher tax situation, no two ways about it.”