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Tax rates are equalized in 1986 tax bill, soon to be reversed.

Tax reform of 2003 reduces tax rate on dividends to 15%.

■ Oridnary Income Capital Gains

Year

Barring a brief period after the 1986 tax reform act, when dividends and capital gains were both taxed at 28%, the capital gains tax rate has been significantly lower than the ordinary tax rate in the United States. In 2003, the tax rate on dividends was dropped to 15% to match the tax rate on capital gains, thus nullifying the tax disadvantage of dividends.

There are two points worth making about this chart. The first is that these are the highest marginal tax rates and that most individuals are taxed at lower rates. In fact, some older and poorer investors may pay no taxes on income, if their income falls below the threshold for taxes. The second and related issue is that the capital gains taxes can be higher for some of these individuals than the ordinary tax rate they pay on dividends. Overall, though, wealthier individuals have more invested in stocks than poorer individuals, and it seems fair to conclude that individuals have collectively paid significant taxes on the income that they have received in dividends over the last few decades.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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