The extension of the so-called "Bush" tax breaks is welcome news for almost everyone, including investors in the stock market. The exception may by our grandchildren who will have to pay of the deficit damage.
Still, raising taxes on everyone when the economy is barely moving is seldom a good idea. What does the tax bill have for investors in the stock market?
The main direct benefit for stock investors is holding the tax rate on dividends and long-term capital gains at the current 15 percent.
If you own a stock or other security for more than one year, you can sell for a profit and know your tax bill will only be 15 percent. Same with dividend payments; a flat 15 percent tax rate regardless of you personal tax bracket.
The only exception is for low-income taxpayers in the 10 or 15 percent bracket – they will continue to pay zero taxes on long-term capital gains and dividends.
This is particularly important to retired people who may not have much in the way of taxable income (no job, for example) and fall into the lower two tax brackets.
Other provisions of the tax bill promise to not take any more out of your pay check and, even put a little more back in with the 2 percent Social Security tax holiday.
While all of this is good for individuals, the overall economy got a small stimulus with the extension of federal unemployment benefits. Unlike tax breaks, unemployment benefits go right back into the economy where those dollars are needed.
