President Obama unveiled his 2013 budget proposal last Monday, eliciting a chorus of cheers and jeers. Among other changes, the budget would raise rates on capital gains and dividends, close corporate loopholes, and create the Warren Buffett-inspired minimum tax on millionaires. Republicans, unsurprisingly, oppose much of the budget, and expressed their disapproval by calling it, "a recipe for a debt crisis and the decline of America."
With the president calling for changes in tax rates and new funding for certain industries, the budget, in whatever final form passes, is sure to have an effect on investors. Let's take a look at who benefits and who loses from the proposed budget.
Wealthy dividend investors
Individual dividend investors making more than $200,000 and couples earning over $250,000 would be big losers under the proposed budget. Right now, dividends are taxed at just 15%, the long-term capital gains rate, but the budget proposal would treat them as ordinary income. That would raise their effective tax rate to 43.4% on dividends, which includes a 3.8% surcharge to support the Affordable Care Act. Companies most likely to be affected would include high-dividend payer Frontier Communications (Nasdaq: FTR ) , which pays a whopping dividend yield of 18.4%. Wealthy investors would see an additional 28.4% of that chunk of quarterly income disappearing under the Obama budget, which may lead them in search of other investment opportunities. AT&T, another high-yielding dividend stock, is already lobbying to maintain current dividend and capital gains rates.
As a college education has become vital for young people searching for a lasting career, the for-profit education sector has sprung up to meet the huge demand that traditional institutions could not. The Apollo Group's University of Phoenix, for example, serves more than 300,000 students, and budget constraints on community colleges have fueled for-profit colleges' incredible growth. However, the for-profits' expansion has slowed in recent years and the budget's proposal to provide $8 billion for community colleges should put a further dent into their profit-seeking competitors. The funding for the community colleges would help the schools partner with local businesses to provide students with job training skills.
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