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S&P Dow Jones Indices Senior Index analyst Howard Silverblatt on the impact of a potential increase in the capital gains and dividend tax rate.
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-- list so congress -- hearings today on capital gains and dividend tax rates the tax on dividends could increase from currently 15%.
To 39 point 6% at the end of the year -- tax hike have an impact on dividend paying stocks -- people to stop buying them.
Or not powered -- over black S&P Dow Jones senior index analyst.
Joins me now -- historical perspective here Howard isn't there that we we've seen this before -- dividend tax rates work.
-- -- that brought down on hiked again and and if you could let's first get your perspective on what happens after the first of the year.
Well.
The way the legislation goes right now the tax that you -- does go from 15% to 396.
And depending upon your income didn't go to.
Up 43 point 4%.
Which is significantly high tripling the attacks and out on -- The strange thing about this when you'll -- dividends in the yields compared to bonds compared to CD's in banks.
This so competitive even at 843%.
Tax rate which brings in to expect that that the 15%.
Low tax rate.
It is unusual -- is in it in.
In US save 350.
Billion dollars in taxes over the last ten years since 2003 to the end of this year yeah.
Now going back to higher rates we saw that of course the -- -- -- to with Ronald Reagan in 86.
When I -- -- and dividend to a seven.
-- and taxed -- -- let me -- let me ask you did that affect people's mind set when it came to should not buy this.
Great stock that has a great dividend oh wait a minute now -- have such a high tax rate did we see them.
Historically we did -- need to be given especially in the -- -- -- -- sex tape an enormous change.
We have a little bit different situation here although we think that there will be in capital -- in fact he had because other competitive rates on not.
That strong -- looking for yield.
You don't have to many places to go the government's keeping the evening the rates -- officially duo.
-- -- spending and investing -- try to -- he's an income produces.
-- -- you go to somebody.
-- LP which have their own situation have been more risky what the fled stocks.
So we think it's gonna be a little bit more limited and we -- historically but definitely it's gonna have an impact -- change that risk reward scenario of what I get to keep in my pocket.
But the nugget here that you point out is that even if we were to revert or go to a 46%.
Tax rate on dividends.
It still might return more than what we're seeing on the ten year treasury what -- point 78%.
Indefinitely.
You know usually S&P 500 yields.
While about 43%.
Less than half of the ten year treasury.
Now the whole idea and here's another point Howard hello -- -- pat Dorsey -- our last our babysit do you think that if companies like ExxonMobil.
And Cisco thought to these are Smart people who run these companies thought that somehow people were gonna stop buying the stock.
-- because dividend tax rates were so high why did they then hike their dividends with in the last year.
Sell all those off of this to craft -- companies that increased a year after yes that they don't have too much of it choice -- increase of ten -- and though.
The story is not -- -- -- isn't is if you don't do it however.
And dividends again even at the high tax rate is a -- are attractive to investors for and it helps the company as they return of payments to them.
Both the dividend the book -- we think the buybacks obviously might benefit if the tax rate goes up as companies midget true.
-- there there's always thinking of the -- bear as we finish up though we just showed a bunch of companies that have recently either instituted our hike to dividend -- dividend here.
And what do we see.
We see a lot of high tech names like Intuit -- for the first -- -- out of the dividend.
Technology really the sector now that's doing it.
Yet -- technology is all largest.
-- dividends.
It in the US it's amazing never would've thought that to be that you case but they off.
And the yield -- little -- under 2% which is less than the average but there's still risk in those issues this technology.
Howard silver black giving us perspective although I think some people are still very nervous about what happens at 46% will be watching it thank you so much that he.
They just --
