A plumber (for example) earns $70,000 a year taxable income, and is taxed at 30% or $21,000. Again, these are examples and using rounded off figures.

This Hedge manager we all want to hate earns $5 million a year. So at the same 30% he should pay $1.5 million.

However only $250,000 is earnings from salary and bonuses. $4.75 Million is dividends which is today taxed at 15%.

So right now the evil Hedge Fund Manager only pays $712,500 on the dividends, and $75,000 on the regular earnings. Only $787,500 in total taxes, or 15.75% on the $5 million. You can change the ratio of earned income and dividend income and it doesn’t really change the bottom line very much. (For example, one million in earned income and four million in dividend income means a base tax rate of 18%, still far below the 30%)

What is the President suggesting? Well with no details, and only a rousing speech, we can only guess. Taxing dividend earnings at the same rate as earned income? Limiting dividend income? A surcharge on the rich? What kind of effect would that have on investments, and on the economy?