Tom Moore was asked by Investment News to share client reactions to the anticipated expiration of the Bush tax cuts.
If Congress does not extend the Bush tax cuts by January 1, the capital gains rate will rise to 20%. Dividends will be taxed at personal rates, the highest of which will be 39.6%.
“I know no clients realize it,” says Tom Moore, an investment adviser with Capital Investment Advisors LLC. “When you tell people, they’re absolutely shocked about it.”
This potential increase in taxes poses a dilemma for the middle class. Republicans argue that the primary beneficiaries of the policies are in the middle-income range and they stand by their efforts to keep the capital gains and dividend rates low.
“Democrats will again fight to extend the tax cut for the middle class and work to ensure that the wealthiest Americans pay their fair share as we reduce our deficit,” House Minority Leader Nancy Pelosi, D-Calif., said in a statement. “While the Republicans continue to protect millionaires and the special interests, Democrats are committed to acting quickly to ensure certainty for America’s middle class and small businesses.”
Whether or not Congress resolves this issue by the end of 2012, the capital gains and dividends rates — wherever they stand — will increase by an additional 3.8%. On Jan. 1, a tax hike on passive income contained in the health care reform law will kick in.