Everyone is yapping about Ron Paul’s budget plan that will hack a whopping $1 trillion from the federal budget and severely cut entitlement programs like Medicaid. Yes, it’s radical and crazy and never been done before and insert expletive here.But, if you own any investments, one part of his plan might not be half-bad.
Paul, along with his fellow Republican presidential contenders Mitt Romney and Newt Gingrich, want to end capital gains and dividends taxes.
Considering about half of American households, more than 50 million households, own stock, according to Federal Reserve Bank’s Survey of Consumer Finance, the plan could help a lot of people.
Ending those taxes means you wouldn’t have to pay taxes on the income you make when you sell your stock or property, or when companies pay dividends out on your stock investments. That’s good news for the wallet.
But these benefits really only play out for the most wealthy households, according to a review by the centre on Budget and Policy Priorities.
The review cites Tax Policy centre data from 2005 showing 54% of all capital gains and dividend income goes to the top 0.2% of households with annual incomes over $1 million. The top 3% of households, those making over $200,000, earn 78% of the total capital gains and dividend money.
Another factor to the equation is that although half of American households own stock, most of that stock, nearly 40%, is in retirement accounts like 401(k)s and IRAs that are already tax-exempt.
So if you make less than $200,000 a year or have most of your stock in retirement accounts—that is, if you’re more like an average American—Ron Paul’s (or Romney’s or Gingrich’s) tax cuts probably won’t mean that much (at least not directly).