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?
My strategy wouldn't change at all. Dividends could go back to being taxed as income as they were before 2003 and I wouldn't change. Higher taxes won't destroy dividend investing. There is always the threat each election that something will happen to investing taxes so imo to change and worry about it until it happens is pointless.
ReplyDeleteYes good to hear. I believe that the power of compounding dividends would crush rising taxes in most scenarios. Dividend investing for me has been great even in an miserable Obama economy, this really gives me good hopes for future investments.
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