Whether rates rise or fall could affect the prices of some dividend-paying stocks, experts say. Some, mainly Republicans, believe that lower rates would boost the economy and lift markets.
Under the current system, people pay the government 15 percent on most dividends and capital gains, the profits from selling investments. Both candidates’ proposals would divide taxpayers into two categories: Those who earn more than $200,000 per year — $250,000 for families filing joint tax returns — and those who earn less.
President Barack Obama would boost the rate on capital gains to 20 percent for higher earners and leave it at 15 percent for everyone else. Mitt Romney wants to maintain the 15 percent rate for wealthier people and eliminate the tax entirely for everyone else.
The differences are more dramatic when it comes to dividends. Obama would tax high earners’ dividends as ordinary income, up to 39.6 percent for the wealthiest Americans. As with capital gains, Romney would maintain the 15 percent rate for richer people and eliminate the tax for people who make less.
The proposals reflect philosophical differences between the parties. Republicans think lower rates will encourage more people to invest, juicing the listless economy.
“It would encourage you to take more risks, put more capital into the economy and hopefully spur economic growth,” says Taylor Griffin, who advises Republican campaigns and served in the Treasury Department under President George W. Bush.