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Why Taxing Dividend Income Hurts The Elderly

Let’s say it’s thirty years from now, and you’ve been a solid middle-income earner your entire life.  You were able to put some money in dividend stocks and mutual  funds that pay a dividend.

With your dividend portfolio, you get by fairly nicely.  You might even be able to go on vacation every now and then.

But times have changed and even though you worked hard your entire life, the government and certain people in the population want to tax those dividends now because they view dividend income as a rich person’s income stream.  But what those who want to tax dividends at higher rates don’t realize is that there are also adverse side effects of doing this.

Believe it or not, but when you don’t have money in retirement and you are hunger, you still have to pay for the food somehow.  If your dividends income stream is cut because of higher taxes on them, then you might have to go back to work.  This in turn makes it harder for young people to get jobs, since the elderly and the young compete for the same entry-level jobs.

I have friends with retired parents who told me a few years ago that it was getting financially harder every year because of the cost of living and inflation.  You see, to them increases in gas prices and food have a direct impact on what they can afford.  I’m sure they aren’t going to be happy once they see that their small dividend portfolio provides less money because of the possibility of dividends being taxed.  I wonder if you’ll see them working at McDonalds soon?  Perhaps not, they getting pretty old.  It’s harder to work when you are older…

Dividends provide them with only part of their income steam.  Luckily they have pensions, and a Social Security income steams.

Too bad we won’t.

What do you think about taxing dividends at a higher rate?  After all, money to pay dividends is already taxed once as company income (double taxation anyone?)…

Share your thoughts,

MR

 

16 Responses to Why Taxing Dividend Income Hurts The Elderly

  1. Depending on the administration, taxes are always discussed. Either raise or cut them. If you are trying to encouraage saving and investing, lower the taxes. If you are trying to raise taxes and don’t care where the revenue comes from, raise the taxes.

  2. “Dividends provide them with only part of their income steam. Luckily they have pensions, and a Social Security income steams.”
    This is why we can’t depend on one source of retirement income. We’ll have to diversify and make money from a few more places like they did.

    • Very true! Of course those additional sources were primarily the government (social security) and pensions (corporations). Seems like both of those two streams have dried up.

      I understand what you mean though, money from real estate, self-employment, etc… This makes total sense! Today it would be wise to think outside of the box, that’s for sure!

  3. It would be nice if dividends were not taxed, if only government could be satisfied by taxing corporate profits once. The problem is that ownersip of stocks is overwhelmingly characterised by the very rich. Perhaps an alternative would be to tax capital gains at a higher rate and lower or drop the dividends tax? What do you think about that?

    • I’m not a fan of taxes really. They already take 40% or more of my income, why increase that percentage anymore… Shoot, if they do increase it too high, why work, for a middle class guy like me it would just be cheaper to go on the dole…

      I mean really if I’m going to go screwed if I work my life away and then the government takes my money when I get older, then why work?

  4. A friend and I had discussed this topic at length. I say raise the tax rate on dividends. If you’re elderly and you have to pay a higher tax on qualified dividends that’s just too bad.

    Like you said, at least many of today’s seniors can rely on Social Security and pensions. Us younger folks won’t have it so easy. No pensions. And a teeny, tiny paycheck from Social Security.

    Here’s what I propose: decrease ordinary income tax rates and increase long term capital gains and qualified dividends tax rates so that the two equal. That way, we’ll have more disposable income to invest during our working years.

    I don’t know what the tax rate would need to be to accomplish what I’m suggesting. I’ll leave that to the PhDs to figure out. But a working stiff shouldn’t have to pay a higher federal income tax rate than a passive investor. It’s unfair. There are other elements of unfairness in the tax code, but I’ll limit my comment to what your blog post touched on.

    • That’s only good for the here and now… Someday you’ll be older an unable to work.. They you’ll be sitting on the porch watching the younger generation have it easy, or then again perhaps not. Perhaps the younger generation will be so burdened with taxes they’ll say screw it and go on the government dole.

      I don’t think you get it. Old people can’t work, to get more money. Go to a nursing home and look around… Can you honestly tell me that taking these people money is fair? Especially after they’ve worked their entire life and built up a nest egg?

      Of course there is always the option of a Roth IRA… Perhaps I’ll need to go that route to bypass getting screwed by the government… hmmm…

      • I get it.

        Old people who live off dividends now, with their pensions and Social Security, will have it easier than those in my generation who’ll have a lot less, if any, of either of these income streams. So, I think they can afford to pay a higher tax on dividends.

        The way things are going now, there could very well be more people in my generation who’ll have to work for the rest of their lives whether they want to or not.

        It’s not fair that we have to pay their Social Security, their Medicare, and subsidize their favorable dividend tax rates with the looming threat that all of it will not be available for us decades from now.

        You’re right. If I live long enough, I will be old some day. Perhaps I’ll be unable to work, and I don’t want to have spent all my money ensuring the previous generations were able to retire comfortably while my chances of retirement grow slimmer and slimmer.

        • Hmm, good point on the Social Security and Medicare!

          I guess I just sympathize because I know old people that are struggling now (I’m not sure if cat food is their mail food stable yet or not though). the average 401k balance of those 55+ and up is only $233,800. That doesn’t go far. and if you cut out their dividend portion of the amount, well it just hurts. But more importantly, it will hurt our generation more.

          They (the elderly) have already crossed that bridge, we are the one that will get screwed with a higher dividend tax percentage to pay. And I guess that’s really what bothers me. The bridge will be burned down by the time I get to it, I guess I’ll be on the front porch watching everybody else enjoy life…

  5. I’ll repeat what I’ve said before (can’t remember if it was on this blog, may have been another one): no federal taxes on dividends, no income taxes, no corporate taxes, nothing. Just 4% tariff on imports, and that’s all you get. Too radical?

  6. I feel like people forget that the money used to buy those dividend stocks were already taxed at the higher ordinary income tax rate.

    • That’s another great point!

      I think a lot of people don’t really do the math (or understand it) and realize that they are being taxes as much as they are.

      Paying taxes isn’t a right, it’s a burden… And taxing dividends at a high rate is taxing people just to tax people. Especially with so much waste in the governments as is.

  7. How do you like that – let’s tax those who have saved, been disciplined, and don’t need government assistance so that we can give it away to those who have done the opposite. Makes me wonder if instead of just saving if my investment portfolio needs to have an element of income that adjusts with inflation (like a business cut or rental income).