Sunday, August 12, 2012
Dividend Investing and Politics - How will it affect you?
It was recently announced that Mitt Romney's Vice President pick is Paul Ryan. For those who don't know, Paul Ryan places a HUGE emphasis on fixing our country's fiscal crisis. If elected, 2 major changes to our tax code could take place and have great impacts on our investing strategies.
1)Ryan "promotes saving by eliminating taxes on interest, capital gains, and dividends; also eliminates the death tax." He believes that double-taxation on the American people is unfair. Period.
2)Ryan "wishes to replace the corporate income tax – currently the second highest in the industrialized world – with a border-adjustable business consumption tax of 8.5 percent. This new rate is roughly half that of the rest of the industrialized world."
What impact would this have on the way we invest? Let me dwell on the first point. No taxes on dividends? Awesome- more money we can keep and continually re-invest for greater compounding returns. Not capital gains taxes? Great when stocks go up we can sell and keep all profits and invest into stocks with lower p/e ratios or discounted stocks etc. We would also be able to sell our rental properties and use all of the profits to invest in cheaper rentals as well, without worrying about our profits being taken by the government.
Now with the second point... Current corporate tax rates sit around 39.2%, putting the United States rate just below Japans 39.7%. Now imagine how much more profitable companies can be if they had their tax rates slashed by over 30%... This provides a lot more room for growth of our dividends and capital, which again, wouldn't be taxed. =)
If Romney and Ryan make it to the white house, how do you think your investment strategy will change? If Obama and Biden are re-elected, will your strategy change as well?