November 29, 2012
WSJ: Companies Race to Pay Dividends to Avoid Obama Tax Scythe in January
Wall Street Journal editorial: The Great 2012 Cashout: Dividends Offer a Lesson in Tax Rates and Investor Behavior:
Perhaps you've heard from various economic sages that tax rates don't matter either to economic growth or taxpayer behavior. Don't tell that to the companies and individuals who are busy cashing out their investments or paying dividends to get ahead of the Obama tax scythe in January. ...
The Journal reports that as of Wednesday morning some 173 companies had announced special dividends, compared to only 72 in the same period a year ago. A recent Bloomberg analysis found that from September to mid-November, 59 companies on the Russell 3000 stock index had declared one-time cash payments to shareholders, four times last year's pace.
"I find no precedent like this at all going all the way back to the 1950s," Howard Silverblatt of S&P Dow Jones Indices told the Journal. Then again, there's no precedent for the Obama Presidency. ...
When government raises taxes on dividends and capital gains, it is lowering the after-tax return on stocks. Share prices will fall over time to adjust to that new rate of return, reducing overall wealth in the private economy, all other things being equal. As for the feds, history suggests they'll see a capital gains and dividend revenue windfall this year, but then a decline next year even at the higher rate.
It's the oldest lesson in tax policy: Tax something and you get less of it. In this era when envy trumps growth, the government is raising taxes on thrift, investment and risk-taking in the name of fairness and to finance more government spending. No one should be surprised when there are fewer dividends and capital gains to tax.
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