How might the expected future reappearance of higher tax rates on individuals receiving dividends affect corporate dividend payout policies?
In 1980, the percentage of firms paying monthly, quarterly, semi-annul, or annual dividends stood at 60 percent By the end of 2002, this percentage had declined to 20 percent In May 2003, President George W. Bush signed into law the Jobs and Growth Tax Relief Recon dilation Act of 2003 (JGTRRA). Porto that new law, dividends were taxed once as part of corporate earnings, and again as the personal income of the investor, in both cases with a potential top rate of 35 percent The result was an effective tax rate of 57.75 percent on some dividends. Though the 2003 tax law did not completely eliminate the double taxation of dividends, it reduced the maximum possible effect of the double taxation of dividends to 44.75 percent. For taxpayers in the lower tax brackets, the combined effect was a maximum of 38.25 percent.