...for dividend income, Senator Obama has proposed only a modest increase in the top tax rate, to 20 percent from 15 percent. That is, the personal income tax would continue to tax dividends at a far lower rate than ordinary income. This decision must surprise many of his Congressional supporters. But it should be making President Bush smile.
In light of Senator Obama’s stand, the politics of dividend taxation may take some surprising twists. Senator John McCain wants to maintain the current tax rate of 15 percent on dividends (while cutting the corporate tax), but it is a good bet that if Senator McCain is elected president, while Congress remains Democratic, Congress won’t give the Republican president what he wants. They would instead let the Bush tax cuts expire, returning the dividend tax for high-income taxpayers to about 40 percent.
By contrast, if Mr. Obama is elected, Congressional Democrats will be less likely to balk at his proposed 20 percent dividend tax rate and thus embarrass the new president from their own party.
This leads to one of the great ironies of the political season. On the issue of dividend taxation, Barack Obama may be the candidate with the best chance of preserving George Bush’s legacy.