LA CROSSE,Wisconsin (WXOW) – Whether the country goes over the so-called "fiscal cliff"or Congress and the President are able to work out a budget deal, it's likely that taxes will go up next year on both capital gains and dividends.
When stocks are sold and profits are made, those profits are called capital gains.
Dividends are checks issued by companies to stockholders on a yearly or quarterly basis.
But changes in the tax rates, currently at 15% for most Americans on both, could cause the market to fluctuate and impact Gallup poll.
Dr. Roberton Williams, a Senior Fellow at the non-partisan Tax Policy Center, said there's some speculations a hike in the rates on capital gains and dividends could lead to a selling spree – in which investors opt to cash in on assets before taxes go up.
"Investors seem to be selling more assets now so they'll pay capital gains at this year's rate rather than the potential rates next year," Williams said. "To the extent people do that, that can drive asset prices down and reduce the value for everyone."
"It doesn't mean it will stay that way but it can certainly happen in the short run," he said.
Williams said that would impact Americans who have a retirement plan or 401k invested in the market.
"If you have a retirement plan, the lower you buy in means the better off you'll be in terms of the amount of appreciation you will have over time,"he said. "So if there's a short term dip in the market, people saving now and planning to draw out 10, 20 or 30 years down the road will likely be better off."
"The people that will be hit are the ones that have to draw out money today, when the market is artificially depressed because of these early sales,"Williams said.
Capital gains and dividends are currently taxed at 15%.
If the country braves the drop waiting on the other side of the fiscal cliff, the capital gains tax on most Americans would increase to 20%.
Williams said the bottom 15% of America's taxpayers currently owe no taxes on capital gains, but the cliff would bring their rates up to 10%.
Rates on dividends would also increase, as they would be taxed as ordinary income.
For instance, a person in America's top tax bracket would also pay the 39.6% rate the fiscal cliff calls for on income.
The President endorses the rate increases, but only on the top 2% of taxpayers, preferring that the rates on all other groups remain the same.
Republicans have rejected all proposals of a rate increase thus far.
But regardless of the eventual outcome, Dr. Steve Tippins, of the UW-La Crosse Department of Finance, said he doesn't think Americans with stocks should panic just yet.
"The fiscal cliff is a political game, not an economic game," Tippins said. "I think, if we go over it, the stock market will go down a little bit, and then traders will realize there's nothing really happening."
"It's just a game Congress is playing," Tippins said.
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