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What Candidates are Proposing for Income Tax on Investments

Contributed by mm | December 9, 2007 7:19 AM PST

taxman.jpgCNN Money's Jeanne Sahadi did an amazing job in compiling the different opinions on tax policy from all presidential candidates. Given the fact that I have a portfolio that briefly crossed seven-figure mark lately, I'm naturally interested in how they think on the investment taxation:

Currently they're both taxed at 15 percent (less for low-income taxpayers), and they are scheduled to rise by 2011 to 20 percent for capital gains and to ordinary income tax rates for dividends.


Edwards: Would make the first $250 of interest, capital gains and dividends tax-free for everyone, although he would favor raising the capital gains tax rate to 28 percent for taxpayers making more than $200,000.

Obama: Would eliminate capital gains taxes for business start-ups, although he would favor raising the capital gains tax rate to somewhere between 20 percent and 28 percent for taxpayers making more than $250,000.

Romney: Wants to eliminate the tax on interest, capital gains and dividends for taxpayers with adjusted gross incomes under $200,000, and would make the Bush investment tax cuts permanent for everyone else.

Giuliani, McCain and Thompson: Would make Bush investment tax cuts permanent.

Huckabee: Has called for the elimination of the income tax system and for a consumption tax to take its place. Under his plan, you would be taxed on what you buy, not on what you earn or save. So there would be no investment taxes.

Unfortunately we don't have Clinton's proposal on the table. I also tried to search various sources but got no meaningful information. (Who knows where Clinton stands on investment tax?)

We have a lot to lose if Bush's tax cuts are reversed. We expect an average portfolio size of $1 million next year (excluding employee stock option account, which will be taxed as ordinary income anyway), so an 8% annual gain means $80k subject to income tax. Currently most of my realized capital gains are long-term capital gains, and my stock dividend income is mostly qualified dividends. If income tax on both qualified dividends and long-term capital gains are increased from the currently 15% to ordinary tax rate -- my current tax bracket is 28% -- we are talking about over $10k a year in additional tax.

On the other hand, if the investor-friendly Romney can get his tax policy into a bill, investors like me will be better off by a similarly-sized five-figure amount.

Still, any tax reform will be at least a couple years away, and I'm mindful that political wishes during presidential campaigns do not equal to actual tax bill in the future. We will just have to patiently wait for the new occupants at White House and Capitol Hill to make up their minds.

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This Post Has Received 4 Comments. Share Your Opinions Too.


Financialchoices Commented on December 9, 2007

I have a tax related question..Have you done much research on the 72T rule for early 401K/IRA distribution without paying the 10% penalty? I have just recently heard about this law. Do you consider this a decent option for someone like yourself trying to retire early?


GS Commented on December 10, 2007

Yes, I would be interested to see the details on Ron Paul's plan as well.


Nabloid Commented on December 10, 2007

HAHA, I was about to ask the same thing... and Ron Paul?

Romney's looks neat. Out of those you listed, Huckabee's is the most interesting cause its the most dramatic change. I heard this explained by an economist once and he said you could basically get rid of the entire system that is in place to collect personal income taxes and corporate taxes and you wouldn't have to worry about tax fruad on the same levels. It would also help people save money due to the way its set up and all the consumption taxes would be built into the price of goods. The biggest reason I love it is because there would be NO double (well triple+) taxation on inheritance and things of that nature, why should I pay taxes on after-tax money from a relative? Go have an economist that knows about the Huckabee scenario explain the pros and cons... its quite an interesting thing to think about.


Xias Commented on December 12, 2007

I'm intrigued by Huckabee's plan as well. As an avid saver and investor, it would be nice not to get penalized for saving money. I could definitely live with a consumption tax, though how high would the tax be, exactly?



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