FE Editorial : Who’ll blink first?
Apart from the fact that raising taxes in a slowing economy is not always a sure thing, the evidence on hand should give Obama pause. As of December 3, according to Reuters BreakingViews, a total of 144 US firms have announced Q4 special dividends of $21.4 billion—some like retailing firm Costco are even borrowing money to pay the dividends—in order to take advantage of the current 15% dividend tax versus a possible 39.6% rate next year. Based on the dividends announced so far, assuming next year’s dividend tax goes up to 39.6%, that’s a potential annualised tax loss of over $20 billion next year just on account of the dividend jumping. BreakingViews’ columnist Daniel Indiviglio has an interesting take on the outline of a possible tax compromise. While raising taxes on American earning more than $200,000 would affect 2.4 million taxpayers, Indiviglio points out, raising this to $1 million will take 2.1 million taxpayers out of the net while reducing the potential tax collections by just a third. Surely that’s a compromise worth looking at? While the Republicans clearly need to rethink their strategy, especially in an America whose social structure is changing dramatically, President Obama would do well to show some flexibility as well. Falling off the fiscal cliff can’t be a great idea, even if voters think John Boehner pushed him.
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