Senate Budget Raises Questions if Dividends Rates Will Top 40 Percent

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The Senate Budget Committee-approved budget resolution does not make room for dividends tax rates to continue to be tied to capital gains rates after 2010, raising questions among some lawmakers about whether Democrats intend to allow the top effective tax rate on dividends to soar to more than 40 percent. Unless Congress acts, the capital gains tax rate will return to its pre-2003 level of 20 percent in 2011 and dividends will again be taxed at ordinary income tax rates of up to 39.6 percent. Combined with the 3.8 percent surtax created in the health care reform law, the effective top tax rate on dividends would rise to 43.4 percent in 2013.