Max Baucus Clears One Hurdle on Dividends Tax Rate—Where’s Harry?

Curtis Dubay / September 22, 2010

For the second time in a week, Senate Finance Committee Chairman Max Baucus (D–MT) has called for the suspension of pay-as-you-go (PAYGO) budget rules to pass necessary and vital tax policies. First, Baucus suggested waiving PAYGO as it pertains to the death tax. Now he’s calling for the Senate to rightly ignore PAYGO so it can keep the tax rate on dividends from skyrocketing to almost 40 percent from its current 15 percent level.

The 2001 and 2003 tax relief packages expire at the end of this year. That means marginal income tax rates, the rate on capital gains, and the rate on dividends will revert to their levels prior to passage of the tax relief. The impending tax hike on dividends is often overlooked in discussions about the expiration of the tax relief, but if the rate rises back to 40 percent, the economy will suffer a painful blow and seniors will be hit especially hard.

Even Congress overlooked the impact a significantly higher dividends tax rate would have on the economy. There is no other way to explain why it failed to include President Obama’s plan to raise the dividends rate (but keep it equal to the 20 percent capital gains rate) when it exempted from PAYGO requirements the rest of President Obama’s plan to keep tax rates where they’ve been for taxpayers earning less than $250,000 a year. (more…)