Tags: 2013 | fiscal | cliff | dividends

Fiscal Cliff: Doomsday for Dividend Investors

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The “fiscal cliff” that the U.S. is set to tumble over on Dec. 31 is a threat to every household. Trillions of dollars in tax cuts will expire, such as the earned income tax credit and the alternative minimum tax. If that weren’t bad enough, trillions in new taxes will be added as ObamaCare begins.

But it’s your portfolio that you should be worried about the most.

That’s because investors need to be very concerned with another change to the tax code: the tax rate on dividends.

Currently the tax rate stands at 15% on dividend income, a rate that has remained unchanged since enacted by the Bush Administration in 2001.

But President Obama has made it very clear that he will let this lower rate expire at the end of the year. Under Obama’s plan, the tax rate on dividends could rise to between 25% and 39.6%, depending on personal income. Add to that the 3.8% tax on any investment income thanks to ObamaCare, and the new top tax rate on dividends is a crushing 43.4%.

This, as one expert points out, will cripple the stock market.

Donald Luskin, chief investment officer of Trend Macrolytics, says in an interview with The Wall Street Journal that we are facing the biggest single hike in dividend tax rates in history, and it will cause the market to fall an incredible 30%.

As he explains, it's a matter of simple arithmetic.

Today, if Company A is trading at $10 per share and pays a $1 annual dividend, the investor keeps $0.85. After the Bush-era tax cut ends, the same investor at the highest tax rate would only keep $0.56 of the same $1 dividend. The investor would see the yield fall from 8.5% to 5.6%.

No investor will simply accept 30% of their yield disappearing overnight. So for investors to be compensated and receive the same yield on their investments as they would have before the new tax rate, stock prices will have to plummet by approximately 30%, until the stock price once again offers an 8.5% yield.

Luskin added, “So just by the numbers, the fiscal cliff matters. Investors are wrong to blithely assume that the boys in Washington will somehow do the right thing and it will all work out in the end.”

Unfortunately for investors, a noted economist sees a scenario that is much worse than anything Luskin could have imagined.

“The data is clear . . . a 90% stock market drop and 100% annual inflation . . . starting in 2013.”

That catastrophic outlook comes from Robert Wiedemer, economist and author of The New York Times best-seller Aftershock. Before you dismiss Wiedemer’s claims, consider this: In 2006 he accurately predicted the collapse of the U.S. housing market, equity markets, and consumer spending that almost sank the United States.

In a recent interview, Wiedemer unapologetically calls out the financial “rescue” devised in Washington. It failed miserably, he charges.

Watch the powerful interview with Robert Wiedemer that has been viewed over 40 million times.

The blame lies squarely on those whose job it was to avoid the exact situation we find ourselves in, including current Federal Reserve Chairman Ben Bernanke and former Chairman Alan Greenspan, tasked with preventing financial meltdowns and keeping the nation’s economy strong through monetary and credit policies.

At one point, Wiedemer even calls out Bernanke, saying that his “money from heaven will be the path to hell.”

But it’s not just the grim predictions that are causing the sensation; rather, it’s the comprehensive blueprint for economic survival that’s really commanding global attention.

The interview offers realistic, step-by-step solutions that the average hard-working American can easily follow.

The overwhelming amount of feedback to publicize the interview, initially screened for a private audience, came with consequences as various online networks repeatedly shut it down and affiliates refused to house the content.

Bernanke and Greenspan were not about to support Wiedemer publicly, nor were the mainstream media.

“People were sitting up and taking notice, and they begged us to make the interview public so they could easily share it,” said Newsmax Financial Publisher Aaron DeHoog, “but unfortunately, it kept getting pulled.”

“Our real concern,” DeHoog added, “is what if only half of Wiedemer’s predictions come true?

“That’s a scary thought for sure. But we want the average American to be prepared, and that is why we will continue to push this video to as many outlets as we can. We want the word to spread.”

Editor’s Note
: For a limited time, Newsmax is showing the Wiedemer interview and supplying viewers with copies of the new, updated Aftershock book including the final, unpublished chapter. Go here to view it now.



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2012-00-14
Wednesday, 14 Nov 2012 05:00 PM
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