Tags: Fiscal Cliff | tax | hikes | pain

Experts: Investment Tax Hikes Shouldn’t Cause too Much Pain

By Dan Weil   |   Tuesday, 04 Dec 2012 08:35 AM

Capital gains and dividend tax increases, which are likely to commence Jan. 1 even if Washington agrees to avoid the fiscal cliff, probably won’t hurt investors much, say experts such as hedge fund manager Doug Kass.

The Seabreeze Partners president is telling his investors not to worry, The New York Times reports.

President Barack Obama has proposed a dividend tax increase to 39.6 percent from 15 percent for people with annual income of more than $200,000. And he seeks a capital gains tax hike to 20 percent from 15 percent for that bracket.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

However, many investors don’t have to worry about dividends and capital gains taxes, because their holdings are in tax-protected retirement accounts. For example, only 14.7 percent of U.S. households hold mutual funds in taxable accounts, according to the Investment Company Institute.

And as Sam Stovall, chief investment strategist at S&P Capital IQ, points out in The Times, many investors who do pay capital gains and dividend taxes have incomes below $200,000 and thus wouldn’t suffer from Obama’s proposed tax increases.

Investors who are worried about dividend taxes might consider master limited partnerships (MLPs). Most of their payouts consist of return of capital, which is tax free, rather than dividends. And many MLPs yield more than 6 percent.

"This is like a massive tax shelter," Michael Cohn, chief market strategist at Atlantis Asset Management, tells CNBC.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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