Investors get caught in partisan crossfire.
It’s almost impossible to discuss dividend taxes without siding with one partisan political camp or the other. If you want to cut dividend taxes, you’re probably a Republican. You believe the private sector is more effective at deploying capital than the public sector is, and dividend taxes—like all forms of investment taxation—take money away from private investors and put it into government hands.
On the other hand, if you want to see dividend taxes raised, then you’re a Democrat. You believe dividend and capital-gains taxes are inherently progressive forms of taxation, lightening the load for lower and middle income taxpayers and shifting it toward those who spend a smaller share of their income on basic necessities.
Few economic issues are so simple, however, that they can be reduced to a binary choice between pure capitalism and progressive interventionism. Dividend taxes are no exception, with cogent arguments for and against extending the 2003 tax cuts—which reduced the rate for dividends in the highest tax bracket from 39.6 percent to 15 percent, and lower rates for other brackets.