In case Geithner needs a refresher on current capital gains and dividend tax rates . . .
CNBC’s Larry Kudlow on Wednesday tried to get Treasury Secretary Timothy Geithner to clarify where the administration stands regarding the top tax rates on dividend income and long-term capital gains, which are set to rise on Jan. 1 without congressional action.
But Geithner’s answer may just have confused matters for CNBC viewers.
“We’re going to make sure that we keep at 20% the existing rates on dividends and capital gains,” Geithner said. “We think that’s good policy.”
But the “existing” top rates aren’t 20%, of course. They are 15%. Those were the cuts President George W. Bush pushed through Congress in 2003.
The 15% rate on long-term gains will revert to 20% on Jan. 1 unless Congress acts. Dividend income would return to being taxed at ordinary income tax rates, currently as high as 35% and scheduled to rise to a top rate of 39.6% in 2011.Kudlow’s initial questioning of Geithner focused on the tax rates that the highest-income-earners could face come Jan. 1. The two were talking over each other in that part of the interview (go here to see it), but Geithner seemed to suggest that the administration was committed to limiting the increase in the top capital gains and dividend rate to 20% for the highest-income-earners -- a proposal the White House made in its initial budget draft earlier this year.
The administration’s threshold for “high income” is $250,000.
As for regular income tax rates, Geithner repeated President Obama’s proposal to allow those rates to rise back to 2001 levels for high-income-earners on Jan. 1, as per the sunset provision of the Bush tax cuts. Geithner called that the “responsible thing” to do, to help pare the federal budget deficit.
He also reiterated that the administration wanted to keep current income tax rates, and the 15% capital gains and dividend tax rate, for most Americans (i.e., those families earning less than $250,000).
“We’re going to make sure that we extend and leave in place tax cuts that will go to benefit more than 95% -- not just of individuals in this country, but of businesses across the country,” Geithner said.
But even if the administration sounds confident about limiting any capital-gains and dividend tax increases, the question is whether Democrats in Congress will have other ideas -- some already do -- and whether Republicans will fight to keep the current 15% rate for all investors.
Do tax rates on capital gains and dividends matter to most investors? Not as long as investments are held in tax-sheltered accounts such as 401(k)s. But investors who own high-dividend-paying stocks in taxable accounts surely will care whether they’re going to face a 15% dividend tax rate in 2011, or something much higher.
-- Tom Petruno
Photo: Treasury Secretary Timothy Geithner. Credit: Alex Wong / Getty Images