As in the past, this shift in tax policy is going to have a huge impact on the way companies attract investors, and the name of the game will be to attract investors by paying more dividends than ever before. Companies that don't pay dividends today will initiate dividend payout plans; and companies that are already paying dividends will increase their dividend payouts to attract new investors like never before.
People are going to start buying investments based not only on the dividends they receive, but also on how much tax they are going to pay. Bond investors will make a "polar shift" in their investment allocations.
This new tax policy will create a winning situation: first, by providing a level playing field with the capital gains tax; and second, when companies pay out higher dividends, they will be able to fund growth by issuing equity rather than debt. This will create a virtual cycle, making stocks more attractive to investors-which in turn creates more demand-which should fuel higher stock prices.
Don Schreiber, Jr., author of Building a World Class Financial Services Business: How to Transform Your Sales Practice into a Company Worth Millions, is president and CEO of Wealth Builders Inc., a wealth and money management firm headquartered in Little Silver, N.J.