Tag: dividends

Manufacturers Applaud Treasury Determination on FX Swaps

The NAM joined the Coalition for Derivatives End-Users today in applauding the determination by the U.S. Treasury Department late last week that foreign exchange (FX) swaps should not to be regulated as “swaps” under the Dodd-Frank Wall Street Reform Act. The NAM and the Coalition called on Treasury to make this final determination two years ago in comments stating that as FX swaps and forwards “do not materially contribute to systemic risk” that they should be granted an exemption from additional regulation. This determination is a clear acknowledgement that over-regulating in this area would be detrimental to end-users’ efforts to manage risk through FX swaps and forward.

Manufacturers have long used derivatives to hedge business risk and the granting of an exemption for these swaps by Treasury is a positive step forward. We hope that other agencies will follow suit and ensure that as they continue to implement Dodd-Frank –particularly in the areas of margin requirements, inter-affiliate trades and cross-border rules –they do not create new costs and regulatory burdens on end-users.  We appreciate Treasury’s granting of an exemption for FX swaps and forwards.

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More Evidence in Favor of Keeping Tax Rates Low on Investment

As each day goes by, manufacturers across the country are eyeing ever more warily the “perfect storm” of tax increases that will take effect at the end of this year if Congress doesn’t act to stop them. The need to extend one particular tax benefit – which reduced and paired the tax rate on savings and investment – in current law is highlighted in a new study released today by the Alliance for Savings and Investment. This coalition of dividend paying companies, investor organizations and trade associations – including the NAM – fights for a continuation of these policies that promote economic growth and job creation by fostering private savings and investment. In a nutshell the study finds that:

Taking into account both the corporate and investor level taxes on corporate profits and state level taxes, the United States has among the highest integrated tax rates among developed countries and these integrated tax rates will rise sharply in 2013:

  • The current top US integrated dividend tax rate of 50.8 percent will rise to 68.6 percent in 2013, significantly higher than in all other OECD and BRIC countries.
  • The current top US integrated capital gains tax rate of 50.8 percent will rise to 56.7 percent in 2013, the second highest among OECD and BRIC countries.

The reduced tax rate on capital gains and dividends was enacted in 2003 as part of an effort to reduce the burden of double taxation on corporate profits while also synchronizing the tax rates on dividends and capital gains in an effort to eliminate any bias for one type of investment over another.

Although obvious to the astute observer, it is essential that in this debate – and in any debate about corporate tax policy – one remember that capital is more mobile in today’s world than ever before and tax policy can go a long way to influence decision making of investors both on the individual and the institutional level.

The NAM has long held that an important objective of long-term tax policy is to maintain competitive tax rates that are low enough to attract the capital formation and investment necessary to ensure durable economic growth – making permanent the synchronized, lower rates on capital gains and dividends is essential to that task.

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If Congress Does Nothing — TAXES!

From The Hill, “Lawmakers face daunting tax agenda when they return for lame-duck session“:

 If Congress does nothing on taxes by the end of the year:

- The estate tax will return to pre-2001 levels, socking estates worth more than $1 million with a 55 percent tax.
- The capital gains tax on most assets will jump from 15 percent to 20 percent.
- Dividends currently taxed at 15 percent will skyrocket to individual tax rates that go as high as 39.6 percent.
- The Making Work Pay tax break will cease to exist.
- The Alternative Minimum Tax will hit the middle class for 2010 tax returns.
- A slew of tax breaks that expired last year, including credits for research and development expenses and relief for college tuition, will not be available for 2010 tax returns.
- The Child Tax Credit will revert from $1,000 to $500.

Hat tip: Veronique de Rugy

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House Democrats Call for Tax Policies to Boost Investment

Citing the fragile U.S. economy and the need for tax policies to promote recovery, a group of 47 House Democrats sent a letter to House Speaker Nancy Pelosi on Sept. 24, urging Congress to extend the current preferential tax rates on capital gains and dividend income. These legislators agree with manufacturers that lower rates on capital gains and dividends encourage savings and investment and benefit businesses and individuals alike.

Unfortunately, if Congress doesn’t act, tax rates on investment income will go up on Jan. 1, 2011. These tax increases will put a wet blanket on economic recovery. With tax rates on dividends at 40 percent or higher, there will be less capital for companies and job retention and creation efforts will suffer.

The National Association of Manufacturers’ latest Capital Briefing online newsletter summarizes the major tax issues at stake as the 111th Congress comes to a close and the 2011 expiration date nears. See “Focus: Congress Must Extend Low Tax Rates to Help Manufacturers.”

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More Evidence for Preserving the 2001-2003 Tax Rates

As we’ve been saying for a long time now, if Congress really wants to create jobs, the first move should be to preserve the current tax rates. Taxes on investment income are often overlooked — they’re complicated and unfortunately too many folks in Congress think that they’re only for the rich.

Thus it’s worth paying attention to today’s Wall Street Journal column by economist Allen Sinai, “Cap Gains Taxation: Less Means More.” Sinai lays out a compelling case why keeping rates low — and even lowering them further — actually stimulates the economy and creates jobs.

Congress is set to act, sometime this fall, on legislation that will determine the rates for investment taxes. While we like Sinai’s idea of zeroing out the capital gains tax, we’ll settle for keeping both capital gains and dividends at the 15 percent rate. It’s certainly a good starting point.

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The End of the World? Not Really, but Still Not a Good Idea

Allan Sloan has an op-ed in today’s Washington Post claiming that tripling the rate on dividends won’t traumatize the stock market.  He cites a few apples to oranges comparisons about the market during Bush’s presidency and the market during Obama’s presidency.  Then he says this: “I don’t want to pay higher taxes, especially on my investment income. Who does? But I don’t think that the world will end — or that my investment portfolio will be vaporized — if rates on investment income rise.”

Allan, when you’re right, you’re right.  You got me.  I don’t think that investment portfolios will be vaporized and I also do not think that the world will end.  In fact, for wealthy investors like Allan Sloan, he’ll probably just tell his high priced investment advisor to “move things around a bit. Mix up the old portfolio.”  But, there are others who will not quite be as lucky.

For example, when dividend payments go down, as they are likely to do (they rose dramatically in 2003 when the tax went down to 15 percent), retirees who live off dividend payments and don’t have high priced investment advisors will just have to do more with less.  Since a substantial portion of 401ks and IRA’s are invested in dividend earning stocks, those who are near retirement will see their portfolios decline.  Dividend paying stocks will once again be at a significant disadvantage to growth stocks, creating an imbalance in the market.

But, is it the end of the world?  No, not really.  But is it where we want to be in this economic environment?  Nope, not really.

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