Dividend Tax Rates

Prior to 2003, the number of companies paying dividends to their shareholders had been on the decline for a quarter of a century, according to the American Shareholders Association. That trend reversed dramatically with the passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) on May 23, 2003. Among a host of other tax law changes designed to jump-start the economy, this piece of legislation temporarily reduced the top individual income tax rate on corporate dividends to 15%. It also reduced the top individual income tax rate on long-term capital gains to 15%. However, the JGTRRA is a sunset provision, and it is currently scheduled to expire on January 1, 2011. Here we look at the implications of this legislation, the history that led up to it, and the effect this change in tax law had on investors and corporations.

The passage of the JGTRRA led to immediate - and ongoing - changes. By year-end 2003, more than 242 companies had increased the amount of their dividend payments. Payments increased again in 2004 and 2005, 2006 and 2007, according to data provided by Standard & Poor's, until the party finally ended in 2008 and 2009 as a result of the mortgage meltdown and credit crisis.

Source: Investopedia

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