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Chief Executive Officers (CEOs) of major U.S. companies wrote to Treasury Secretary Geithner urging the administration to reconsider its proposal to increase tax rates on dividends and capital gains.

May 9, 2012   Bookmark and Share

Dear Secretary Geithner:

Three and a half years have now passed since the start of the financial crisis, and economic recovery is finally taking hold. We are concerned about a specific part of the Obama administration’s fiscal year 2013 budget proposal – increasing the tax rate on dividends and capital gains – and the adverse effect it will likely have on our economy and job creation.

Equity capital is the lifeblood of investment and job creation for U.S. companies. We believe the administration’s proposal will limit corporations’ ability to raise new capital and undermine economic growth.

Dividend-paying stocks offer investors a bright spot in a challenging financial marketplace. The administration’s plan to increase the top tax rate on dividends from 15 percent to 39.6 percent in 2013 will likely have a seriously disruptive effect on this economic sector, reducing the incentive to pay dividends.

Lower dividend yields and higher taxes on dividends would also hurt economic security for taxpayers at every income level – particularly seniors, who rely heavily on investment income to make ends meet.

The threat of looming tax increases on dividends and capital gains could also increase volatility in the stock market this year. Investment advisers are already cautioning clients to consider potential tax law changes for dividends and capital gains while making investment decisions.

The top 15 percent rate on dividends and capital gains was passed in 2003 to reduce the double-tax burden on corporate income and minimize the differences in tax treatment between growth stocks and dividend-paying stocks. The administration proposal to impose a 39.6 percent tax rate on dividends would actually mean a much higher rate for many taxpayers due to expiring deductions and the new 3.8 percent Medicare tax, beginning in 2013.

Under your proposal, the top combined federal income tax on dividends would approach 45 percent -- triple the current tax. The top combined income tax rate on capital gains would be 23.8 percent.

A recent study compared the tax rates on dividends and capital gains in the United States to those in other developed nations. The top U.S. integrated tax rate on dividends (which takes into account state and local taxes), according to the Ernst & Young study for the Alliance for Savings and Investment, “will rise to 68.6 percent in 2013, significantly higher than in all other OECD (Organisation for Economic Co-operation and Development)and BRIC (Brazil, Russia, India and China) countries.”

The top U.S. integrated tax rate on capital gains would reach 56.7 percent -- the second highest among countries measured. In the global competition for capital investment, these punishingly high combined U.S. tax rates on dividends and capital gains, when combined with high U.S. corporate tax rates, could put U.S. companies at a competitive disadvantage.

We fail to see the administration’s rationale for making such a major change in its tax policies.

If America is to remain competitive in the global marketplace, we must build a tax code that encourages investment to spur economic growth and help create new jobs. We urge the administration to reconsider and support retaining the current 15 percent tax rate on dividends and capital gains. If we don’t, it could spark a new wave of volatility in our financial markets and give a competitive edge to overseas corporations at a time when we need capital formation here in America to create jobs and expand our economy.

Sincerely,

Mr. Martin J. Barrington
Vice Chairman
Altria Group, Inc.

Mr. Jeff Sterba
President and Chief Executive Officer
American Water

Mr. Nicholas DeBenedictis
Chairman, President and Chief Executive Officer
Aqua America

Mr. David R. Emery
Chairman, President and Chief Executive Officer
Black Hills Corporation

Mr. David M. McClanahan
President and Chief Executive Officer
CenterPoint Energy

Mr. Glen F. Post, III
Chief Executive Officer
CenturyLink

Mr. Thomas Farrell, II
Chairman, President and Chief Executive Officer
Dominion Resources

Mr. Gerard M. Anderson
Chairman, President and Chief Executive Officer
DTE Energy

Mr. James E. Rogers
Chairman, President and Chief Executive Officer
Duke Energy

Mr. Theodore F. Craver, Jr.
Chairman, President and Chief Executive Officer
Edison International

Ms. Maggie Wilderotter
Chairman and Chief Executive Officer
Frontier Communications Corporation

Mr. Duncan Niederauer
Chief Executive Officer
NYSE Euronext

Mr. Thomas A. Fanning
Chairman, President and Chief Executive Officer
Southern Company

Mr. Gregory L. Ebel President and Chief Executive Officer
Spectra Energy

Mr. D. Scott Davis
Chief Executive Officer
United Parcel Service

Mr. Lowell McAdam
Chairman and Chief Executive Officer
Verizon Communications Inc.

Mr. Jeff Gardner
President and Chief Executive Officer
Windstream Corporation

Mr. Gale E. Klappa
Chairman, President and Chief Executive Officer
Wisconsin Energy Corporation

Mr. Benjamin G.S. Fowke, III
Chairman, President and Chief Executive Officer
Xcel Energy