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Dividends are taxed twiceAlthough many are not aware of it, investors who own dividend-paying stocks are effectively taxed twice. As Motley Fool points out in their article on surprising tax facts, “companies have already paid tax on the earnings that they use to pay their dividendsâ€, which you are then taxed on individually upon receipt. As Milton Friedman and other economists have observed, this is one of several ways in which the corporate income tax functions as a hidden sales tax on the products, services, and/or dividends of a company. But because the tax bite is taken before consumers and investors get their money, it typically goes unnoticed by those parties.Many large corporations pay no corporate income taxMotley Fool goes on to reveal several examples of large corporations (including GE and ExonnMobil) that have not paid a dime in corporate income taxes in the last several years. Generally, such corporations can avoid paying U.S. corporate income taxes by instead paying foreign corporate income taxes – which can be substantially lower. It’s worth noting, though, that Motley Fool is not entirely correct to say such companies receive a “free ride†tax-wise. The corporate income tax is not, as many people believe, a substitute for personal income taxes. Rather, a C corporation’s income is taxed once at the corporate level, and what’s left is then taxed again on the personal income tax returns of the company’s owners. While one tax is called corporate and the other is not, both taxes are paid by the same human beings.The top marginal income tax bracket was once 91%As discussed earlier, the IRS taxes people at different marginal income tax rates (or “brackets) depending on the amount of their income. The more you earn, generally speaking, the more tax you pay. As of 2010, the highest marginal tax bracket in the U.S. is 35%. However, our older readers will remember that they were once far higher. As recently as 1980, the top tax bracket was 50% – which was itself a vast reduction from its 91% peak during the Carter administration. (Something to keep in mind before complaining too loudly about your tax burden today!)
