Wicker: Make Dividend, Capital Gains Tax Cuts Permanent

WICKER: MAKE DIVIDEND, CAPITAL GAINS TAX CUTS PERMANENT
June 6, 2005

REPORT FROM CONGRESS
By Congressman Roger F. Wicker

Legislation enacted in 2003 to cut taxes on dividends and long-term capital gains has encouraged families to save and invest and enabled companies to pay larger dividends. These provisions have brought economic growth, but they will expire in 2008 unless Congress extends them. I have joined the effort to sustain this tax relief by cosponsoring a bill to make the lower tax rates permanent.
It is clear that this change to the tax code has been a plus. It has contributed to a rise in stock market values, put more money into the hands of consumers, and created more investment opportunities. We cannot afford to step back from the gains that have been made over the past two years.

I believe action on this measure is necessary to eliminate uncertainty that could force consumers and companies to delay investment activities. Making the provisions permanent would reassure investors as they plan for retirement and other financial objectives. Allowing the provisions to sunset and revert to a higher rate would also amount to a tax hike that could stifle our growing economy.

CONGRESS CUT RATE TO 15%

Before the rate cut, dividends were taxed as ordinary income and subject to rates as high as 35 percent. Long-term capital gains, those assets held for more than a year, were taxed at a maximum rate of 20 percent. The 2003 legislation lowered the top rate on dividends and capital gains to 15 percent.

In the year following passage of the measure, the number of publicly traded companies paying dividends increased dramatically. In 2004, 113 companies began paying dividends, compared to an average of 22 companies in prior years. Total dividend payments by American companies also jumped sharply during the same time period. The Securities Industry Association estimated that an additional $81 billion in dividend payments were put into the hands of investors over the past two years.

MIDDLE-CLASS FAMILIES AFFECTED

The benefits of this tax relief are being felt by individuals and families across a broad income range. The latest Internal Revenue Service figures show that nearly 60 percent of taxpayers reporting dividend income earned less than $75,000. Lower tax rates on capital gains and dividends have also produced positive results on Wall Street. Many analysts credit these provisions as having a significant impact on the overall rise in the stock values.

The lower rate has also been a factor in improving corporate governance. Unlike other forms of profitability that can be subject to manipulation, companies paying dividends offer investors tangible proof of success in the form of cash. This development has encouraged corporate management to be more vigilant in its decisions and concentrate on the investments that increase shareholder value and higher dividends.

The many benefits that have come from cutting the dividend and capital gains tax rate are at risk because this tax relief is not permanent. We need to make it permanent as soon as possible.

http://www.house.gov/wicker/CapitalGains.htm