For Those Who Love Irony: How Rising Taxes Drove Income Higher

What the . . .???   I thought tax rates had no impact on income or behavior or investing!!

But here we see the impact of scaring investors and companies with higher tax rates: they take their money out of the market.  In this instance, companies rushed to get their dividends to investors before the end of December, in order to avoid the higher dividend rate which was being ushered in along with Baby New Year.  Imagine that!

Timorous

 

John Carney By: Senior Editor, CNBC.com


One day after the Federal Open Market Committee announced that economic growth paused in December 2012, the Commerce Department released data showing that personal income rose by the most since 2004.

The 2.6 percent increase in incomes blew away the official expectations number, which was 0.8 percent.

The biggest clue to how incomes rose while the economy stalled is contained in the Commerce Department’s data about the sources of rising income. Of the $353 billion income rise, $268 billion came from dividends. That is, dividends accounted for around 75 percent of the total increase.

That is a breath-taking rise. As Steve Liesman pointed out this morning, monthly dividends have only increased by more than that only once in the past 50 years — in 2004, thanks to a record-breaking dividend from Microsoft.

Much of the hike in dividends seems likely to be due to companies paying shareholders before the expiration of Bush-era tax cuts on dividends. And so, ironically, the looming hike on dividend income actually resulted in a dramatic rise in that income. Taxes drove income up.

Even some of the non-dividend income increase might have been driven by higher taxes, as some firms paid bonuses out early to avoid having them taxed at a higher rate in the new year.

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You can read the remainder of this interesting article by clicking here.

 

Thursday, January 31st, 2013 Education, News

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