Tax Plan Showdown: What About the 98 Percent?

Investment Tax Trickle Down

Romney would also extend the Bush tax cut provisions that keep the tax rate for capital gains and dividends at 15 percent and eliminate all federal income taxes on those investment incomes for people earning less than $200,000.

Obama would allow that provision of the Bush tax cuts to expire for people earning more than $250,000, making the tax rate on capital gains jump to 20 percent and dividends taxes rise to 39.6 percent.

The president's health care law imposes an additional 3.8 percent tax on investment incomes, further bumping those rates up to 23.8 percent for capital gains and 43.4 percent for dividends.

"It directly affects those making more than $250,000, but the indirect effect is that it affects the general level of the stock market," said William McBride, an economist at the conservative Tax Foundation.

Allowing the investment tax rates to rise to the levels Obama has proposed would make the value of dividend-paying stocks plummet about 30 percent McBride said.

"This is serious," he said. "When you suddenly triple the tax on dividends that means the price investors are willing to pay for dividend wielding stocks will go down."

People who earn less than $250,000 and do not directly see their investment taxes go up will still be affected if they own mutual funds or have a 401K retirement plan, both of which could see their value go down because of the increased tax rates on dividends, McBride said.

While Obama and Romney have both made taxes the focal point of their campaigns this week, with both candidates out on the campaign trail touting their plans Tuesday, their proposals are not new and their announcements are not fresh.

"These are elements of past speeches, budgets and campaign plans that have surfaced and submerged over the past several years," said Pete Sepp, a spokesman for the National Taxpayers Union, which supports limited government and low taxes. "These ideas have had a long shelf life and have been brought off the shelf and put back on more than a few times."

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