Value of Dividends | The Dividend Tax Rate Reduction | The Next Step for Congress | Resources

Value of Dividends

Dividends are an important component of shareholder value for the shareholder-owned electric utility industry.

• In 2009, U.S. shareholder-owned companies paid out $17.1 billion in dividends to investors.
• With a payout ratio of 70 percent for the 12 months ending December 31, 2009, these companies paid out the highest percentage of earnings last year among all U.S. business sectors.

The Dividend Tax Rate Reduction

In 2003, Congress pass an important law—the Jobs and Growth Tax Reconciliation Act of 2003—that temporarily reduced the maximum tax rate on dividend income from almost 40 percent to 15 percent. Taxpayers in the 10- or 15-percent tax brackets currently pay no taxes on their dividend income.

Millions of Americans—from all income levels and age groups—own stocks that pay dividends. In fact, a January 2010 study done by Ernst & Young found that 27.1 million tax returns had dividends qualifying for lower dividends tax rates in 2007 (the latest year for which complete IRS data are available).

Lower dividend tax rates also make dividend-paying companies—like electric companies—more attractive to investors. This helps increase the value of utility stocks and lowers the cost of capital, which is critical for electric companies at this time of rising capital expenditures. Electric companies are spending approximately $80 billion per year on infrastructure-related investment—about twice the level spent in 2004. These projects also offer an important source of much-needed, high-quality jobs in many states.

The Next Step For Congress

Extended in 2006, today's lower dividend tax rates are scheduled to expire on December 31, 2010. This means the maximum tax rate on dividend income will surge by 164 percent—from 15 percent to 39.6 percent. Plus, the recently passed health care legislation imposes an additional 3.8 percent Medicare tax on all investment income beginning in 2013 for households earning more than $200,000 (single)/$250,000 (married).

As the nation recovers from one of the worst economic periods since the Great Depression, now is not the time to discourage Americans from investing in dividend-paying companies by raising their taxes on dividend income. Instead, Congress should encourage long-term investment in our nation's economy and future—and stop a dividend tax hike!

Resources

• Defend My Dividend
  Learn more about the benefits of the dividend tax rate reduction and send letters to your Members of Congress asking them to stop a dividend tax hike.
• Lower Dividend Tax Rates Promote the Development of Cleaner Energy Technologies That Create High-Quality Jobs
• Lower Dividend Tax Rates Encourage Investment In Our Economy
• Raising Dividend Taxes Will Cause Unintended Consequences