Jim Trippon CPA

Say what you want about the folks in either house of Congress, but they have been nothing if not busy over the past few weeks. Health care reform finally made its way to the President's desk to be signed into law and financial reform appears to be up next on the docket. All of this works out to be items on a laundry list that incumbents can tell their constituents about as we head into next year's mid-term elections, but if Congress really wants to get something done that will benefit investors, the dividend tax issue should be of the highest priority.

Under President Bush, the dividend tax and capital gains tax rates was pared to 15%, but President Obama would like to boost that number to 20% for married couples earning more than $250,000 a year. While that doesn't sound good, it is actually far better than the alternative, which is doing nothing.

If Congress does nothing, which it has a proclivity for regarding a litany of issues, the capital gains tax would jump to 20% and dividends would be taxed as ordinary income at an astonishing 40%.

You may have noticed that dividends have made a nice comeback in 2010, but few, if any of the increases have been strong enough to help investors absorb a dramatic tax increase of 15% to 40%.

A 40% tax on dividends would certainly get many companies talking about re-evaluating their dividend policies and investors, regardless of income bracket, would lose under that scenario. Simply put, Congress cannot afford to do nothing.