In 2003, the federal tax rate on dividends and capital gains paid to individual taxpayers was reduced to a maximum of 15 percent. This reduction is effective through December 31, 2010.
Dividends are taxed twice, once at the corporate level and then again at the individual taxpayer level. Dividend-paying companies and their shareholders are, therefore, penalized in relation to other types of investments. Reducing the tax on dividends was intended in part to address this inequitable double taxation.
Most energy utilities that deliver natural gas have a history of paying regular quarterly dividends, many without interruption for decades or even longer. Half of all investors in energy utilities are individuals, rather than institutional investors, who seek stable investments because they are older (perhaps retired) and less affluent than other shareholders. These investors tend to rely on the regular income that energy utility stocks provide.
Reducing the tax rate on dividends has been a benefit for energy consumers by making energy utilities a more attractive investment. These investments have helped provide utilities with part of the estimated $100 billion they will need during the next 20 years to expand their pipelines and other infrastructure to meet the growing demand for natural gas.
President Obama’s Budget Proposal (2/09) would keep the 15 percent rate in place for households with incomes up to $250,000 ($200,000 single filers) and increase the rate to 20 percent for those above $250,000 beyond 2010. This proposal recognizes that dividends and capital gains should be taxed at an equal rate and that both should be taxed at a lower rate than regular income.
One of AGA's top priorities is to make permanent the lower tax rate on dividends and capital gains. Action to make permanent the lower rate should take place as soon as possible to provide certainty and confidence to investors.
AGA Contact: Charles Fritts, (202) 824-7220, firstname.lastname@example.org