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Thursday, January 31, 2013

John Carney — How Rising Taxes Drove Incomes Higher in December

The biggest clue to how incomes rose while the economy stalled is contained in the Commerce Department's data about the sources of rising income. Of the $353 billion income rise, $268 billion came from dividends. That is, dividends accounted for around 75 percent of the total increase.

That is a breath-taking rise. As Steve Liesman pointed out this morning, monthly dividends have only increased by more than that only once in the past 50 years — in 2004, thanks to a record-breaking dividend from Microsoft.
Much of the hike in dividends seems likely to be due to companies paying shareholders before the expiration of Bush-era tax cuts on dividends. And so, ironically, the looming hike on dividend income actually resulted in a dramatic rise in that income. Taxes drove income up.
Even some of the non-dividend income increase might have been driven by higher taxes, as some firms paid bonuses out early to avoid having them taxed at a higher rate in the new year.
One off?

CNBC NetNet
How Rising Taxes Drove Incomes Higher in December
John Carney | Senior Editor

7 comments:

  1. Perhaps this could have been the major source of funds for the equity fund inflows now in January...

    rsp,

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  2. I think that is exactly the source. A little like playing with house money- so less risk averse.

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  3. Dividends are stupid since the point of a common stock company is to CONSOLIDATE capital for economies of scale not DISSIPATE it.

    Just another example of how stupid our money system is ...

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  4. it also represents "dis-saving" by the non-govt corporate sector and creates an intra non-govt sector $NFA flow... but probably triggers increased taxes on the dividend income on the non-govt sector as a whole...

    rsp,

    ReplyDelete
  5. VERY misleading headline by Carney. Almost seems to want to make it appear that higher taxes are a good thing--that they increase income.

    Dividends were paid out in advance of those tax increases.

    ReplyDelete
  6. What he leaves out is that dividends have been the fastest rising portion of personal income since 2010. Private wages and salaries have hardly grown at all. Interest income has declined and gov't transfer payments are up a paltry amount and about to plummet. In other words, if you want to see your income rise, buy dividend paying stocks. All policy--income, tax, trade--is now fashioned so that's the only way you'll get income gains.

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  7. Right it reads like we should want higher taxes in order to increase incomes...

    ReplyDelete