Obama's Relentless Attack on Prosperity

Obama Proposes Taxing Wealthiest Dividends
By JACKIE CALMES

In his new budget blueprint, President Obama is proposing to tax dividends of the wealthiest taxpayers as ordinary income subject to their top income-tax rate, which was the practice until the Bush administration lowered the rates. The proposal, released on Monday morning with other parts of the budget, would raise about $206 billion over 10 years.

Assuming that the Bush-era tax cuts expire at the end of the year, as required by law, dividends for the top 2 percent of income-earners would be taxed at 39.6 percent. Before 2002, the richest taxpayers paid a 35 percent tax on dividends, like on all ordinary income.

Republicans are certain to try to block the change, as they have done to thwart Mr. Obama’s 2008 campaign promise to end the Bush-era tax cuts for those making more than $250,000 a year.

Mr. Obama once again proposed no change for taxing dividends of Americans with taxable income less than $250,000. Taxpayers in the 10 percent and 15 percent tax brackets – that is, households with up to about $100,000 in income – pay no income taxes on dividends or capital gains. Those in the 25 percent and 28 percent brackets pay a 15 percent rate on income from both dividends and capital gains.

In past years, Mr. Obama had proposed to raise the tax rate on dividends only slightly, to 20 percent from 15 percent. Retaining a tax preference for dividends income was the one exception to his 2008 campaign proposal, which have been blocked by Congress, to end all Bush-era tax cuts for those with more than $250,000 income.

“At a time of unprecedented budget cuts across the board, we can’t afford to do that now,” said an administration official, who agreed to speak only on grounds of anonymity.

Republicans and other supporters of a special rate for dividends say the money is already taxed once, at the corporate level.

But the administration official said: “Part of the motivation for this is that there are currently too many ways for the wealthy and the well connected to avoid paying their fair share of taxes. Much of income escapes taxation even at the corporate level.”

Mr. Obama would be open to a preference for dividend income as part of an overhaul of the tax code, the official said, “but absent that broader reform, he thinks we cannot afford to have a lower rate on top of all of the existing loopholes and tax benefits.”

Capital gains income for the wealthiest taxpayers was taxed at 28 percent from the Reagan administration through 1997, when the rate was reduced to 20 percent as part of a budget agreement between President Bill Clinton and a Republican-controlled Congress. Mr. Bush reduced that to 15 percent.