Natural gas utilities that use OTC derivatives to manage price volatility will not be required to conduct OTC derivatives transactions on an exchange or through a clearinghouse.  We sought to clarify certain definitions in the legislation to make the exemption more clear.   While our legislative recommendations were not included, Senate Banking Committee Chairman Dodd and Senate Agriculture Committee Chairwoman Lincoln signed a joint letter to House Financial Services Committee Chairman Frank and House Agriculture Committee Chairman Peterson that addresses many our concerns.  This letter was incorporated into the Congressional Record on June 30^th by the two House Committee Chairmen.  This letter should provide valuable guidance to the SEC and CFTC as they develop regulations on these issues.  To view the joint letter, please click here.

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The president’s apparent about face came when he stated that, “if you make more than $250,000 a year, going back to the tax rates that existed under Bill Clinton are perfectly fair.” When it comes to dividend tax rates, this statement runs counter to everything the president has previously said and even contradicts his own budget proposal.

Now, I fully understand that he may be talking about something different, but AGA’s long involvement in supporting reasonable dividend tax rates helps us recognize when something may be afoot.

Millions of Americans, from all income levels and age groups, own stocks that pay dividends. Senior citizens and people reaching retirement age, in particular, represent a large community of investors who own dividend-paying stocks. In fact, many seniors rely on dividend payments to supplement their retirement income.

In addition to the concern that the tax rate on dividends could skyrocket to nearly 40 percent for taxpayers in higher brackets, the recently enacted Health Care Reform legislation will subject unearned income (dividends, capital gains, interest and passive income) to an additional Medicare tax of 3.8 percent for taxpayers at higher income levels.  So for some investors, their tax bill will reach nearly 44 percent.

That’s why AGA has been so supportive of President Obama’s proposed budget for fiscal year 2011 that maintains the 15-percent tax rate on dividends for most middle-income taxpayers and the zero-percent rate for low-income taxpayers. For married taxpayers earning more than $250,000 ($200,000 for single taxpayers), the tax rate on dividends is increased to a reasonable 20 percent.  It’s fair, it’s reasonable and it supports the investment efforts of hard working Americans in all tax brackets.

So, when I hear President Obama talk about going back to Clinton-era tax rates in such an open-ended way, I hope I’m just overreacting and not seeing the wrong kind of change for America’s investors.

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If Congress does not act, on December 31, 2010, investors from all walks of life – whether individual retirees or pension fund managers – will face markedly increased taxes on their dividend income.  In fact, the maximum dividend tax rate will jump from the current 15 percent to almost 40 percent!

I was just in Albuquerque, New Mexico, speaking to more than two hundred investors who are concerned about what the future holds for them.  This event, an annual luncheon for members of the New Mexico Utility Shareholders Alliance, brought home to me the importance of face-to-face advocacy.  I had been invited to talk about this very issue and to let everyone in the room know that someone was looking out for them.

Looking out for America’s Investors

As the leading national grassroots advocacy organization dedicated to preserving fair and reasonable dividend tax rates, Defend My Dividend (DMD) is leading the fight to protect investors who depend on their dividends to make ends meet, to plan for the future and to provide themselves with a sense of security.

DMD is actively supporting proposals by President Obama and Senate Finance Committee Chairman Max Baucus (D-MT) to make permanent the current capital gains and dividend tax rates for the majority of Americans while capping the rate at 20 percent for higher-income families. Over the summer, Chairman Baucus introduced legislation that mirrors the capital gains and dividend policies in President Obama’s fiscal year 2010 budget.  They are sensible goals that support America’s investors and promote investment in the companies and businesses that are moving this country forward.

How We Got Here

Prior to 2003, dividends were taxed as ordinary income, with a maximum rate of 35 percent. After 2003, dividends were taxed at a 15 percent rate for all taxpayers. In 2006, Congress extended that dividend provision through 2010, while also lowering the tax rate to zero for the two lowest federal brackets.  Without action by congress, the dividend tax rate will rise to a maximum of 39.6 percent – in tough economic times, that’s just wrong.

This Really Does Affect Everyone

Many Americans depend on their dividend checks to supplement household income.  But did you know that lower dividend rates also help to attract much-needed capital for local energy utilities?  That’s important, especially at a time when utilities are making major investments in power generation and delivery facilities.

This is real money and it impacts real families.  In fact, the dividend tax rate reduction benefits more than 24.5 million households – 59 percent of which have incomes less than $75,000.  24 percent of households receiving dividends had incomes below $25,000. And 72 percent of households receiving dividends had incomes below $100,000.

Even if you don’t receive dividends yourself, if you invest in a 401(k), are part of a pension plan or even have shares of a mutual fund, dividends are probably a bigger part of your life than you realize.

DMD is preparing to step up its national grassroots campaign in 2010 by drawing attention to this one-year countdown and ensuring that congress supports President Obama and Chairman Baucus.

DMD is also expanding its message to make sure that every American understands that now more than ever, the fate of the dividend tax affects everyone.

To learn more about DMD and to learn how you can make your voice heard, visit www.DefendMyDividend.org today.

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In light of the President Obama’s budget and Senate Finance Committee Chairman Max Baucus’ supporting legislation, the campaign recently retooled its Web site (www.DefendMyDividend.com) and refined its messaging to commend the president and chairman who have both made statements in support of maintaining and making permanent the 15 percent dividend tax rate for a vast majority of Americans and capping the rate at 20 percent for other taxpayers.

In this video clip, I have a chance to discuss the DMD campaign and other key issues with Mandy Clark, Executive Director of Utility Shareholders of Florida.

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Realizing the important role the dividend tax rate reduction played in creating economic growth, the 2006 extension pushed the expiration date from 2008 to 2010. Now, in an increasingly uncertain economy, Congress will soon debate whether to let the dividend tax rate reduction expire. If it does, we could see the tax rate on dividend income jump overnight to an astonishing 39.6 percent.

Recently the Defend My Dividend coalition, a national grassroots advocacy campaign that supports making low tax rates permanent, commended proposals by President Obama and Senate Finance Committee Chairman Max Baucus (D-MT) to make permanent the current capital gains and dividend tax rates for the majority of Americans while capping the rate at 20 percent for higher-income families.  Chairman Baucus recently introduced legislation that mirrors the capital gains and dividend policies in President Obama’s FY2010 budget.

This issue is important because the lower dividend tax rate helps attract much-needed capital for the energy sector at a time when utilities are making major investments in power generation and delivery facilities. Since our economy relies on affordable, reliable energy, we need to help ensure investment in our energy infrastructure by capping the maximum tax rate on dividends.

If you are one of the more than 50 percent of households who own stock in electric and gas utilities, we urge you to visit the campaign web site, www.DefendMyDividend.org, and become a part of the effort to extend or make permanent today’s reasonable tax rate on dividends.

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In 2003, Congress temporarily reduced the maximum tax rate on dividend income from 38.6 percent to 15 percent.  As a result, this lower tax rate has meant that utility shareholders can keep more of their dividend income.  It has also spurred investment in dividend-paying companies such as utilities, that rely on the new capital to build pipelines, transmission wires, power plants, and make investments in new energy efficiency and environmental technologies-all to keep pace with the country’s continually rising demand for energy.

Unfortunately, the current 15 percent maximum tax rate on dividend income is set to expire at the end of 2010-unless Congress takes action now to extend or make it permanent.  Without any action, the new maximum tax rate on qualified dividends could increase to more than 39 percent for some taxpayers.

The dividend issue is particularly important today, given the slowing economy and credit crisis. Senior citizens make up the largest number of utility shareholders-64 percent of utility shareholders are 65 years or older.  Middle- and low-income households also are affected by the dividend tax rate issue.  Sixty-eight percent of those receiving utility dividends have annual incomes of $75,000 or less, and 42 percent of utility shareholders earn less than $25,000 per year. These shareholders rely on their quarterly dividend checks to help with everyday expenses.  They would be particularly harmed if the higher tax rate on dividends went into effect.

This past November, nearly 60 utilities met to discuss, plan and launch “Defend My Dividend” (DMD), a joint campaign of AGA and EEI to convince Congress to make permanent the 15 percent tax rate on dividend income.  The DMD campaign is amplifying and focusing the full grassroots power of the country’s natural gas and electric utility industries.  Working together, the DMD campaign is now telling Congress that millions of average Americans across the country depend on dividend income to heat their homes or pay for medicine, food and other essentials, and they do not want to pay higher taxes on these crucial earnings.

The campaign’s web site, www.DefendMyDividend.org, offers more information about the campaign, as well as updates, and importantly, a way for you to join the effort to renew the lower tax rate on dividends.  Please visit the site today, and tell other utility shareholders, along with your friends and family, about the site too.  We need everyone’s voice to make a difference in keeping today’s 15 percent tax rate on dividends permanent.

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