Hi CI,
From the few CEO's I know, their view would much prefer a stock buy back program with it's associated fewer shares outstanding and its corollary of a higher EPS, which would reward them with either more stock options and/or greater cash bonusses.
That is if the company does not have a foreseeable need for growth and Capex.
Many CEO's have very large ego's and consider their legacy of greater growth and profits to be much more alluring than paying out more dividends to their stockholders.?
HUH? If his proposal ever becomes law, there won't be a massive tax advantage for companies to retain cash rather than distribute it out as dividends.
Corporations pay taxes on a fiscal year or calendar year's retained earnings. After that a dividend is then declared and distributed.
Where is cash retention by a corporation given a massive tax advantage?
Taxation applies to earnings - whether distributed or not.
Biden has said his tax plans would increase the corporate tax rate as well.
Would not a higher tax rate leave less to distribute as dividends to stockholders?
Let's review Biden's plan as detailed by the Tax Foundation:
Biden’s plan also includes the following proposed business tax changes:
Increases the corporate income tax rate from 21 percent to 28 percent. [5]Creates a minimum tax on corporations with book profits of $100 million or higher. The minimum tax is structured as an alternative minimum tax—corporations will pay the greater of their regular corporate income tax or the 15 percent minimum tax while still allowing for net operating loss (NOL) and foreign tax credits. [6]Doubles the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of US firms from 10.5 percent to 21 percent.In addition to doubling the tax rate assessed on GILTI, Biden proposes to assess GILTI on a country-by-country basis and eliminate GILTI’s exemption for deemed returns under 10 percent of qualified business asset investment (QBAI). [7]
Here is Biden's individual tax plan:
Biden’s plan includes the following payroll tax, individual income tax, and estate and gift tax changes:
Imposes a 12.4 percent Old-Age, Survivors, and Disability Insurance (Social Security) payroll tax on income earned above $400,000, evenly split between employers and employees. This would create a “donut hole” in the current Social Security payroll tax, where wages between $137,700, the current wage cap, and $400,000 are not taxed. [1] [That's a potential additional 6.3% on high wage earners to the corporation].Reverts the top individual income tax rate for taxable incomes above $400,000 from 37 percent under current law to the pre-Tax Cuts and Jobs Act level of 39.6 percent.Taxes long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent on income above $1 million and eliminates step-up in basis for capital gains taxation. [2]Caps the tax benefit of itemized deductions to 28 percent of value for those earning more than $400,000, which means that taxpayers earning above that income threshold with tax rates higher than 28 percent would face limited itemized deductions.Restores the Pease limitation on itemized deductions for taxable incomes above $400,000.Phases out the qualified business income deduction (Section 199A) for filers with taxable income above $400,000.Expands the Earned Income Tax Credit (EITC) for childless workers aged 65+; provides renewable-energy-related tax credits to individuals.Expands the Child and Dependent Care Tax Credit (CDCTC) from a maximum of $3,000 in qualified expenses to $8,000 ($16,000 for multiple dependents) and increases the maximum reimbursement rate from 35 percent to 50 percent.For 2021 and as long as economic conditions require, increases the Child Tax Credit (CTC) from a maximum value of $2,000 to $3,000 for children 17 or younger, while providing a $600 bonus credit for children under 6. The CTC would also be made fully refundable, removing the $2,500 reimbursement threshold and 15 percent phase-in rate. [3]Reestablishes the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market. Biden’s homebuyers’ credit would provide up to $15,000 for first-time homebuyers. [4]Expands the estate and gift tax by restoring the rate and exemption to 2009 levels.
Lastly here are the anticipated impacts of this huge governmental money grab - IT IS NOT PRO GROWTH!
That looms very daunting for an increase in dividends in the future!
Economic EffectAccording to the Tax Foundation General Equilibrium Model, Biden’s tax plan would reduce the economy’s size by 1.62 percent in the long run. The plan would shrink the capital stock by about 3.75 percent and reduce the overall wage rate by a little over 1 percent, leading to about 542,000 fewer full-time equivalent jobs.
Table 1. Economic Effect of Biden’s Tax PlanGross Domestic Product (GDP)
| -1.62% | Capital stock
| -3.75% | Wage rate
| -1.15% | Full-time Equivalent Jobs
| -542,000 | Source: Tax Foundation General Equilibrium Model, October 2020.
| The economic effect of Biden’s tax proposals can be separated to show the specific impact of each proposal on long-run economic output (see Table 2).
Table 2. Economic Effect of Biden’s Tax Plan by ProvisionProvisionLong-Run Change in Economic Output Apply a Social Security payroll tax of 12.4% to earnings above $400,000
| -0.18% | Tax capital gains and dividends at 39.6% on income above $1 million and repeal step-up in basis
| -0.02% | Restore estate and gift taxes to 2009 levels
| -0.15% | Limit the tax benefit of itemized deductions at 28% of value for those earning over $400,000
| -0.09% | Raise the corporate income tax to 28%
| -0.97% | 15% corporate minimum book tax
| -0.21% | Total
| -1.62% | Source: Tax Foundation General Equilibrium Model, October 2020.
| The increase in the corporate income tax from 21 percent to 28 percent and the 15 percent minimum book tax on corporations make up a majority of the economic impact of Biden’s tax proposals. Applying the Social Security payroll tax on earnings over $400,000 also reduces long-run output by about 0.18 percent. Taxing capital gains as ordinary income for those earning over $1 million, repealing step-up in basis, and limiting itemized deductions to 28 percent of value for higher earners also contribute to lower economic output for a combined reduction of 0.11 percent. Biden’s plan to increase the estate and gift tax would reduce long-run output by 0.15 percent.
Biden’s proposed increase to the top individual income tax rate from 37 percent to 39.6 percent does not reduce long-run growth, as the top individual income tax rate is already scheduled to increase under current law in 2026. This is because of the temporary nature of the tax reduction under the Tax Cuts and Jobs Act (TCJA) from 2018 to 2025. [16] Similarly, the phaseout of the Section 199A pass-through reduction for those earning over $400,000 does not reduce long-run growth because it is scheduled to expire in 2026.
Effect of Biden’s Tax Plan on Gross National ProductSeveral of Biden’s tax proposals, such as imposing ordinary income tax rates on capital gains and dividends for those earning over $1 million and raising estate and gift taxes, would reduce both American economic output (GDP) and the incomes received by Americans. By estimating the plan’s effect on Gross National Production (GNP), we can examine how the plan would reduce American incomes.
Taxes levied on domestic saving may reduce the ownership of American investment by domestic residents. However, the U.S. economy is open to international investment, which means that domestic investment opportunities may instead be financed by foreign investors not subject to the increased tax burden. While increased international investment helps reduce the effect of the tax change on domestic output, it would also change the composition of that output’s ownership. In the case of international investment, returns to those investments would instead flow to foreign owners, rather than to Americans.
The result of this capital flow is a wedge between GDP (economic output) and GNP (American incomes). Biden’s tax plan would produce this wedge by raising taxes on domestic savers, resulting in lower American incomes and greater foreign ownership of domestic assets. This would also manifest in a shifted balance of trade, increasing the trade deficit, all else held equal. [17]
The Tax Foundation’s General Equilibrium Model assumes that C corporations and the U.S. government can receive financing from abroad without changing interest rates, while the pass-through sector may not be able to fully use foreign capital inflows when tax rates change. This means the service price of capital may increase for the pass-through sector, producing lower investment and long-run economic output. [18] In combination, this means the Biden taxes on U.S. savers reduces economic output for pass-through firms and shifts the ownership of C corporations away from domestic residents due to increased foreign financial inflows. All else being equal, this reduces long-run American incomes, and the increased foreign financial inflows drives up the value of the dollar, which increases the trade deficit, all else held equal.
According to the Tax Foundation’s General Equilibrium Model, the Biden tax plan would reduce long-run GNP by about 1.83%. [19] The difference between the plan’s effect on GNP and GDP results from the flow of foreign investment into the U.S. that keeps U.S. economic output higher than GNP after taxes change.
Table 3. Effect of Biden’s Tax Plan on Gross National ProductGross Domestic Product (GDP)
| -1.62% | Gross National Product (GNP)
| -1.83% | Source: Tax Foundation General Equilibrium Model, October 2020.
| In addition to reduced economic output and lower GNP, the shift in financial flows internationally may also produce transitional effects. While these effects may be smaller than those produced by larger taxes on savers proposed by others (such as a wealth tax), there would still be impacts on exchange rates as capital flows readjust. [20]
If international capital flows are restricted in the future, the Biden plan’s taxes on savers would result in an even greater loss in economic output and less investment in the American economy than these estimates show, resulting in lower wages and worker productivity.
Revenue EffectBased on the Tax Foundation General Equilibrium Model, we estimate that, on a conventional basis, Biden’s plan would increase federal tax revenue by $3.33 trillion between 2021 and 2030 relative to current law. Increasing the corporate tax rate to 28 percent would account for the largest revenue gain (about $1 trillion over 10 years) in the plan. Adding other changes on the business side, such as the 15 percent corporate minimum tax and tax increases on international profits, Biden’s taxes on businesses account for about 46 percent of the revenue gains.
Higher taxes levied on taxpayers earning more than $400,000, including higher tax rates on ordinary income as well as capital gains and dividends, would raise another $1 trillion over 10 years. The payroll tax increase for high-income households would generate around $820 billion in additional revenue over 10 years.
Table 4 presents the conventional revenue score for each individual provision of the plan. We estimate the integrated revenue effects by stacking one provision after the other. The presented revenue effect for each provision is the difference between the newly stacked simulation and the simulation that includes all provisions listed above it. Note that some of Biden’s proposals, such as the higher marginal income tax rate on income above $400,000, raise revenue in the beginning of the 10-year window, but not at the end. This is because under current law, the lower 37 percent rate is already scheduled to revert to 39.6 beginning in 2026, meaning Biden’s proposal does not result in increased revenue in those years.
Our original analysis projected that the Biden tax plan would raise about $3.8 trillion conventionally over 10 years. The reduction in estimated revenue is due to two factors. First, the economic downturn driven by the coronavirus pandemic reduced expected revenue over the budget window, including revenue expected from tax increases. Second, the Biden campaign included new tax credit proposals, including a $105.5 billion expansion in the CTC, that reduced net revenue collections over the budget window.
On a dynamic basis, we estimate that Biden’s tax plan would raise about $553 billion less revenue than on a conventional basis over the next decade. Dynamic revenue gains would total approximately $2.78 trillion between 2021 and 2030. That is because the relatively smaller economy would shrink the tax base for payroll, individual income, and business income taxes.
Table 4. Conventional and Preliminary Dynamic Revenue Effect of Biden’s Tax Plans (Billions of Dollars)Proposal20212022202320242025202620272028202920302021-2030 1. Apply a Social Security payroll tax of 12.4% to earnings above $400,000
| $73.2 | $78.5 | $81.3 | $80.7 | $79.5 | $80.8 | $83.9 | $87.1 | $88.1 | $86.8 | $819.9 | 2. Raise the top ordinary income tax rate from 37% to 39.6%
| $25.1 | $29.0 | $30.4 | $31.1 | $32.5 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | $148.1 | 3. Reactivate the Pease limitation for income above $400,000
| $16.2 | $18.8 | $19.7 | $20.4 | $21.4 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | $96.6 | 4. Tax capital gains and dividends at 39.6 percent on income over $1 million and repeal step-up in basis
| $14.2 | $27.1 | $39.5 | $42.1 | $45.8 | $49.5 | $56.9 | $61.8 | $64.8 | $67.6 | $469.4 | 5. Limit the tax benefit of itemized deductions at 28% of value for those earning over $400,000
| $23.7 | $27.7 | $28.9 | $29.7 | $31.2 | $25.3 | $27.7 | $28.7 | $29.7 | $31.0 | $283.5 | 6. Phase out qualified business income deductions for income over $400,000
| $29.9 | $34.4 | $35.8 | $37.3 | $39.6 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | $177.1 | 7. Expand the Child Tax Credit (CTC) to $3,000 maximum value, $600 bonus for children under 6, and make the CTC fully refundable with no phase-in thresholds
| -$105.5 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | -$105.5 | 8. Expand the Child and Dependent Care Tax Credit (CDCTC) to a maximum value of $8,000 and increase the refundability percentage to a maximum of 50 percent
| -$6.0 | -$7.0 | -$7.2 | -$7.5 | -$7.9 | -$8.3 | -$8.7 | -$9.0 | -$9.4 | -$9.7 | -$80.7 | 9. Provide a First-Time Homebuyer Credit up to $15,000 in value
| -$12.0 | -$14.0 | -$14.5 | -$15.0 | -$15.9 | -$16.9 | -$17.8 | -$18.8 | -$19.4 | -$20.2 | -$164.6 | 10. Restore the gift and estate tax to 2009 levels
| $26.5 | $28.3 | $30.0 | $30.9 | $32.4 | $31.1 | $25.5 | $24.1 | $25.5 | $26.5 | $280.7 | 11. Raise the corporate income tax rate to 28%
| $40.9 | $78.0 | $96.0 | $106.3 | $115.8 | $117.4 | $118.5 | $122.7 | $125.8 | $128.9 | $1,050.8 | 12. Impose a 15 percent corporate minimum tax on book income
| $7.9 | $15.1 | $18.6 | $20.5 | $22.3 | $22.7 | $22.9 | $23.7 | $24.3 | $24.9 | $202.7 | 13. Double the tax rate on GILTI, eliminate the exemption for deemed returns to QBAI, and impose GILTI on a country-by-country basis
| $16.0 | $29.5 | $34.7 | $39.2 | $43.1 | $28.5 | $26.9 | $26.3 | $24.3 | $21.2 | $289.7 | 14. Miscellaneous credits
| -$6.6 | -$9.1 | -$11.0 | -$11.8 | -$12.9 | -$14.7 | -$15.7 | -$16.6 | -$17.5 | -$18.4 | -$134.3 | Total Conventional Revenue
| $143 | $336 | $382 | $404 | $427 | $315 | $320 | $330 | $336 | $339 | $3,333 | Total Dynamic Revenue
| $129 | $284 | $314 | $343 | $358 | $306 | $267 | $260 | $262 | $259 | $2,782 | Source: Tax Foundation General Equilibrium Model, October 2020. Items may not sum due to rounding.
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Distributional EffectOn a conventional basis, Biden’s tax plan would make the tax code more progressive. The proposed changes to individual income taxes affect the distribution of the tax burden differently after 2025, as the individual income tax provisions in the TCJA expire and Biden’s CTC proposal is no longer in effect. To show this difference, we present the distributional effect for both 2021 and 2030.
In 2021, on a conventional basis, taxpayers in the top 1 percent would see their after-tax incomes reduced by around 11.3 percent due to higher taxes on income above $400,000. The top 5 percent would see a reduction in after-tax incomes of about 1.3 percent. Filers in the 90th to 95th percentiles would see a slight reduction in after-tax incomes of about 0.2 percent.
Taxpayers in lower income quintiles would see an increase in their after-tax income in 2021. This increase is driven by the large expansion of the CTC in 2021, which boosts the bottom 20 percent’s after-tax incomes the most due to the CTC’s increased refundability and size. Taxpayers higher up the income distribution would see smaller increases in after-tax incomes, facing the indirect effects of higher business taxes while receiving a CTC benefit that is a lower share of their after-tax incomes compared to the bottom 20 percent.
The conventional distribution table for 2030 contrasts with the conventional distribution in 2021. This is because the proposed CTC expansion would have ended, and households across the income spectrum would experience lower after-tax incomes. The bottom 20 percent of filers, for example, would experience a 0.2 percent decrease in their after-tax incomes in 2030.
Households across the income spectrum in 2030 would face an increased tax burden on labor from higher corporate income taxes. The Tax Foundation’s General Equilibrium Model assumes that the corporate tax is borne by both capital and labor and evenly split between the two in the long run. However, the labor share of the corporate income tax change is gradually phased in over five years. [21]
Another notable difference is that the change in after-tax income for the top 1 percent would be smaller in 2030 than in 2021. This is because several individual income tax provisions, such as the 37 percent top marginal income tax rate, expire starting in 2026. Accordingly, some of Biden’s tax increases on high-income households would not increase their tax burden in 2030 compared to current law in that year. Biden’s plan would reduce after-tax incomes for the top 1 percent by about 7.7 percent in 2030, compared to 11.3 percent in 2021. On average, after-tax income for all taxpayers would shrink by 1.9 percent, lower than the 1.2 percent decline in 2021.
On a dynamic basis, the Tax Foundation’s General Equilibrium Model estimates that the plan would reduce after-tax incomes by about 2.8 percent across all income groups over the long run. The lower four income quintiles would see a decrease in after-tax incomes of at least 1.2 percent. Taxpayers in between the 95th and 99th percentiles would see their after-tax income drop by 2.1 percent, while taxpayers in the 99th percentile and up would have a more significant reduction in their after-tax income of about 8.9 percent.
Table 5. Distributional Effect of Biden’s Tax PlanIncome GroupConventional, 2021Conventional, 2030Dynamic, long-run | 0% to 20% | 10.8% | -0.2% | -1.2% | | 20% to 40% | 3.6% | -0.2% | -1.2% | | 40% to 60% | 1.4% | -0.3% | -1.3% | | 60% to 80% | 0.6% | -0.5% | -1.4% | | 80% to 100% | -3.9% | -3.0% | -3.8% | | 80% to 90% | 0.1% | -0.6% | -1.5% | | 90% to 95% | -0.2% | -0.7% | -1.6% | | 95% to 99% | -1.3% | -1.1% | -2.1% | | 99% to 100% | -11.3% | -7.7% | -8.9% | | TOTAL | -1.2% | -1.9% | -2.8% | Source: Tax Foundation General Equilibrium Model, October 2020.
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This is not intended to be political - it is just the expected changes that Biden has proposed.
Obviously there is a lot of progressive spin going around along with this big government - we know how to spend your money better.
To posit that an investor, invests his money and never touches it again for the rest of his life so the tax step up in value goes to his heirs on a tax free basis and they never sell the stock in their life time as well is a bit of a stretch is it not?
By the way what happens when the inherited stock is converted into money - you guessed it , it gets taxed, and at what rate according to Biden, why 39.6 percent plus plus if you make over $400,000.
If and when it is determined that Biden becomes the president and the Democrats have control f both houses, I do greatly fear there will be a huge sell off. A sell off caused to prevent the higher taxation levels that will be imminent.
That is a decision that one must make in this calendar year and it may well not be known until next year. That could indeed be too late. Hello to another 20% tax impact on your dividends and capital gains.
For those who think "Revolution" was out of line, I offer this definition:
Revolution - Wikipedia
en.wikipedia.org/wiki/Revolution
In political science, a revolution ( Latin: revolutio, "a turn around") is a fundamental and relatively sudden change in political power and political organization which occurs when the population revolts against the government, typically due to perceived oppression (political, social, economic) or political incompetence. Or in the case of the 2020 election due to a non typical very unAmerican like election fraud and corruption.
THINK ABOUT IT FOLKS.
THAT above tax grab can hit us all TOO LATE, late in just18 days.
It is not just corporate and individual, it is the hugest tax increase in the history of the US.
Additionally it will result in less income for individuals and corporations.
If you think Biden's plan is a huge advantage for Corporations to pay out more in taxes to the individual - you are about to be rudely surprised. Take another drink of that KOOL AID.
I don't know what I'll do, but I'm sure I'll lock in some known good gains before year end !
Wishing you all good investing while capital preservation is beginning to look prudent to me.
Bob
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Bob |
