In 2003, Congress passed an important law – the Jobs and Growth Tax Reconciliation Act of 2003 – that temporarily reduced the maximum tax rate on dividend income to 15 percent. Extended in 2006, the reduced tax rate is now scheduled to expire on December 31, 2010. One of the original goals of the 2003 law was to jump-start the economy and generate investment in the stock of American companies.
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.