Higher tax rates on dividend income will affect the nation's economy too. The businesses that pay dividends do so because it makes their stocks more attractive to investors. Lower dividend tax rates allow companies to raise needed investment capital at a lower cost.
Electric utility companies, for example, paid out 59.2 percent of their earnings in the form of dividends last year -- the most of any U.S. business sector. The next highest payout ratios were the Consumer Staples sector at 44.6 percent, and Industrials sector at 31.3 percent. And since the dividend tax rate reduction took effect, electric utility capital expenditures have increased 84 percent-from $43.0 billion in 2003 to $79.1 billion in 2011.
These investments are building cleaner generation facilities, they are automating distribution networks, and they are preparing for the advent of mass-produced electric vehicles that are just now entering the U.S. market. Importantly, these capital investment programs create an important source of much-needed, high-quality job creation in many states as well.
Finally, raising dividend tax rates will likely slow down the economic growth that has begun. Companies and shareholders make their investment decisions with an eye toward the long-term future. They know that Congress has acted in recent years to keep the tax rates on dividends low for all investors, so a future tax increase may not be reflected in current stock valuations. This raises the likelihood that financial markets and our nation's economy will suffer further if Congress and the President don't act to stop a dividend tax hike.
Time is quickly running out on today's dividend tax rates. With the still-fragile economy finally starting to show signs of recovery, now is not the time to reduce dividend income through higher taxes and punish Americans who invest in our nation's future.
Richard McMahon is vice president, finance and energy supply, of the Edison Electric Institute, an association of shareholder-owned electric companies. Visit www.DefendMyDividend.org for more information.