With the re-election of President George W. Bush, lower capital-gain and stock-dividend tax rates are likely to become permanent. However, investors holding stocks within tax-deferred retirement accounts won't benefit from the reduced rates.
(PRWEB) November 10, 2004 -- With the re-election of President George W. Bush and Republican control of the Senate and House after the 2004 election, reduced tax rates on capital gains and stock dividends are likely to become permanent.
Prior to the election, the Bush administration passed three major tax cuts: the Economic Growth and Tax Reform Reconciliation Act of 2001 (EGTRRA); the Job Creation and Workers Assistance Act of 2002 (JCWA); and the Jobs and Growth Tax Relief and Reconciliation Act of 2003 (JGTRRA).
EGTRRA, JCWA, and JGTRRA are collectively known as "the Bush tax cuts." However, many of the provisions of the Bush tax cuts were designed to "sunset" or expire after a number of years.
"It's likely we'll see a permanently reduced capital gains tax rate and a permanently reduced tax rate on stock dividends," says Peter Hupalo, author of "Becoming An Investor: Building Wealth By Investing In Stocks, Bonds, And Mutual Funds."
While many affluent investors are happy to see their taxes lowered, other investors fear making the tax cuts permanent will lead to higher federal budget deficits which could ultimately hurt the economy.
"One of the reasons that the tax cuts weren't just made permanent in the first place was the projected cost. The capital gains tax cut and the dividend tax cut will cost the treasury an estimated $125 billion through 2008, when they're set to expire," says Hupalo.
Critics of the Bush tax cuts argue that the tax cuts disproportionately benefit the richest 1% of the population and that many people who see themselves as "the investor class" won't benefit significantly.
"The average investor saving for retirement uses a 401(k) or an IRA. If stocks in your 401(k) pay dividends, those dividends aren't taxed when they're received. But, when the money is withdrawn from the 401(k), it will be taxed as ordinary income. So a lower dividend tax rate won't affect stocks in a 401(k) or in an IRA. It's primarily people who hold stocks outside of tax-deferred retirement plans who'll benefit from special capital gain and dividend tax rates," commented Hupalo.
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