The Looming 164% Dividend Tax Hike
Today’s reduced federal tax rates on dividend income are good for investors, consumers, American businesses and the recovering U.S. economy. But unless Congress acts now to stop a tax hike, the maximum tax rate on dividend income is set to skyrocket at the end of the year — leaping by 164% for some investors.
Twice during the past decade, Congress has voted to cap the federal tax rate on dividends at 15%. If Congress does not act again, taxpayers will see their tax rate on dividends jump from 15% to as high as 39.6% after Dec. 31, 2010.
Lower dividend tax rates are important to the more than 27 million Americans — from all income levels and age groups — who directly own dividend-paying stocks. In addition, tens of millions of Americans own stocks indirectly through mutual funds, life insurance policies, IRAs, pension funds and 401(k) plans. Today’s lower dividend tax rates mean that these investors can keep more of the income they earn as dividends.
Keeping dividend tax rates low is important for shareholder-owned electric companies as well. Electric companies typically pay out a higher percentage of their earnings as dividends than other business sectors. And nearly every electric company pays regular dividends, with many having done so for more than 50 years.
By making dividend-paying companies like ours attractive to investors, the lower tax rates keep our cost of equity capital lower. And keeping our cost of capital down is vital now, when we are financing major new infrastructure investment projects.
(Excerpt) Read more at investors.com
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