Estimate That 2-Year Dividend Tax Extension Will Save Investors $74.5 Billion

Posted by: Howard Silverblatt on December 8, 2010

The proposed two-year extension for qualified dividends to be taxed at 15% would add an additional US$ 74.5 billion into the hands of individual investors, and bring the ten year tax savings to US$ 348.4 billion (which is $348 not collected by the government). The savings are for dividends paid to individuals in taxable accounts.

In the short run I believe the two-year extension reduces the immediate pressure to pay one-time extra dividends or to move up January payments to December. Longer term, the 15% lower tax rate becomes more attractive to investors, who currently have few alternatives (even at the higher tax rate yields were competitive). Boards which would have been more hesitant to issue and increase fully taxed dividends, and might have pushed for more buybacks, will now have a higher comfort level of the net return to shareholders, and one less reason not to pay dividends. I will be releasing a full dividend report later in the month (editors, compliance and product people, oh my): S&P 500 Dividends: Out Of The Night That Covers Me

Also, if the if the total write-off of equipment purchases passes in Congress, Capital Expenditures for the S&P 500 should increase substantially (Q3 was up 14% but it appeared that the increase was mostly maintenance, not expansion). However, having ‘lived’ (but not always invested) through several of these, my question is where will the equipment come from, and where might it create jobs - in the U.S. or abroad?

See file for detailsDIV_TAX_2012.doc

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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