Dividend Tax BriefingFall 2010

Lower Dividend Tax Rates Will Expire December 31

Congress passed a law in 2003 that temporarily reduced tax rates on dividends

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2010 Dividend Tax Rates by Ordinary Income Tax Rates*

Ordinary Income Rates

Dividend Rate

10% 0%

15% 0%

25% 15%

28% 15%

33% 15%

35% 15%

* Married individuals filing joint returns.

Current capital gains tax rate is 15%; maximum tax rate will rise to 20% at end of year if Congress does not extend current rates

2011 Dividend Tax Rates by Ordinary Income Tax Rates*

Ordinary Income Rates

Dividend Rate

15% 15%

28% 28%

31% 31%

35% 35%

39.6% 39.6%

If Congress allows current rates to expire:

Stop a dividend tax hike for everyone. Retain lower dividend tax rates for all taxpayers.

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Our Objective

The maximum tax rate on dividend income will soar as much as 164%—from 15% to 39.6%—if Congress doesn’t act to stop a dividend tax hike.

27 million Americans from all income levels and age groups directly own stocks that pay dividends. Tens of millions own dividend-paying stocks indirectly through pension funds, 401(k) plans, IRAs, mutual funds, or life insurance policies.

Raising dividend tax rates to previous levels will create a tax policy that favors capital gains over dividends. Maintaining parity between tax rates for dividends and capital gains is essential so tax policy doesn’t favor growth stocks and debt investment over dividend-paying investments. 4

Talking Points

Raising dividend tax rates would disadvantage the largest dividend-paying sectors, such as electric and natural gas utilities, making it more difficult to finance critical infrastructure projects that are sources of high-quality job creation.

Raising taxes on dividend income—even just for higher-income taxpayers—would affect ALL taxpayers who receive dividends by discouraging investment in dividend-paying companies and potentially lowering dividend payments for everyone.

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Talking Points

Media CoverageChanging the Conversation

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Don’t Let Tax Cuts Expire At Year-End

July 27, 2010By Senator Johnny Isakson

EditorialHold off on tax increases while the economy lags

August 7, 2010

August 9, 2010

Higher Taxes on Dividends Will Discourage

Investment and Retard Economic Recovery

Now Not Time to Raise Dividend Taxes

August 10, 2010By Anthony F. Earley, Jr.

By Lew HaySeptember 4, 2010

Hiking tax rate will really hurt Floridians One Nation, Two

DeficitsBy Peter Orszag

Former White House Budget Director September 6, 2010

Experts Continue To Weigh In

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Keeping Tax Cuts Beneficial in Short Term, Harmful Over

Long Term, CBO SaysAugust 20, 2010

One Nation, Two Deficits

By Peter OrszagSeptember 6, 2010

“In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether.”

“… permanently extending tax cuts put in place under President George W. Bush would provide a ‘considerable’ economic boost over the next several years ...”

“At a minimum, the House will not extend the tax cuts benefiting taxpayers of incomes above $250,000 despite some suggestions in the Senate that they be extended along with all other Bush tax cuts.” – House Majority Leader Steny Hoyer (D-MD)

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Contentious Political Debate

“The fact is, we have to be acting in a fiscally sound way. And we can't afford those [tax cuts]. We never could.” – House Speaker Nancy Pelosi (D-CA)

“I am concerned that extending capital gains and dividends tax relief would provide limited benefits to those taxpayers who need them most while burdening our children with a mountain of debt.”– Senate Majority Whip Dick Durbin (D-IL)

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Stakeholder Outreach and ResultsContentious Political Debate

"My fear is that not extending those tax cuts is equivalent to instituting a tax increase at a very critical and challenging time for the economy. I will vote to extend those tax cuts for some period down the road." - Senator Ben Nelson (D-NE)

“As a general rule, you don’t want to be cutting spending or raising taxes in the midst of a downturn.” – Senate Budget Committee Chairman Kent Conrad (D-ND)

“We don’t need to raise taxes now… We don’t need added uncertainty, added burdens on business right now.” – Senator Evan Bayh (D-IN)

“In a recession, you don’t tax, burden and restrict. The economy is likea ship, and if you sink the ship, all the good you might do goes down with it.” – Representative Bobby Bright (D-AL)

“Given the unique economic difficulties we face as a nation, this is the wrong time to raise these taxes. We need to retain these tax cuts that encourage investment that stimulates growth and job creation.” – Representative Harry Mitchell (D-AZ)

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Legislative Update

Rep. John Adler (D-NJ) and 47 Democrat House members sent letter to Speaker Pelosi supporting extension of current dividend and capital gains tax rates

Legislation to extend current tax cuts introduced by Minority Leader Mitch McConnell (R-KY)

Senate Finance Committee Chair Max Baucus (D-MT) likely to introduce legislation that echoes President Obama’s plan

Congress out until after November elections

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The Challenges

Obama Will Not Extend Bush-Era Tax

Cuts to WealthySeptember 8, 2010

“President Obama on Wednesday will rule out any compromise that would extend the Bush-era tax cuts for the wealthy beyond this year, officials said, adding a populist twist to an election-season economic package that is otherwise designed to entice support from big businesses and their Republican allies.”

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Defend My Dividend

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