Head-strong Republicans demand permanent extension of the Bush-era tax cuts. Lame-duck Democrats look to stick it to the "wealthy." All the while, the political game of chicken keeps the American people as well as significant portions of its financial markets in a continuous state of high anxiety. What should one do about dividend-paying stocks today if capital gains go up to 20% on Jan. 1, 2011? What might wealthier individuals do in 2010 to minimize the impact of higher tax brackets next year? How would an exodus by the wealthier folk who hold the majority of stock shares affect the markets at large? It feels a lot like a Hollywood script. Picture the campiness of the 80's classic "War Games," mix in the vengeance of the 90's film "Patriot Games," and you've got yourself a screenplay with the title, "Tax Games." Unfortunately, the current tax policy posturing is very real. With the Dow, S&P 500, and Nasdaq all within spitting distance of new 52-week highs, you may not have noticed the impact on dividend stocks. Nevertheless, it's there alright. What's more, tax uncertainty is only one reason for the shaky standing of Dividend ETFs.
While there's a high degree of probability that Bush-era tax cuts will be extended for everyone, there's uncertainty about the duration of an extension (e.g., 1 year, 2 years, 3 years, etc.) as well as the timing of the "deal." I believe it'll get done prior to year-end, but some folks believe the lame-duck December Congress will balk at new legislation. It's certainly possible that a retroactive bill would be introduced in January, hampering decision-making here in December.