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Higher Dividend Tax Discourages Investment, Savings

March 3, 2012 — The Wall Street Journal    Bookmark and Share

"Obama's Dividend Assault" (Review & Outlook, Feb. 22) succinctly outlines the harmful impact a top dividend tax rate of 44.8% would have on taxpayers at every income level. A tax increase of this magnitude would not only hurt millions of families, it could force investors to seek opportunities outside the U.S. and slow economic growth in the coming years.

Corporate earnings are taxed at multiple levels before reaching taxpayers as capital gains or dividend payments. The integrated rate of taxation describes the aggregate of these layers of taxation—federal, state and local—plus taxes individuals pay on their dividends or capital gains. If investment tax rates increase in 2013, as called for in the Obama administration's budget, the U.S. will have the highest integrated tax rate on dividends and the second highest integrated capital-gains tax rate among OECD and BRIC countries. This is not the leadership role the U.S. should play in a competitive, global economy.

Capital is mobile. If America fails to provide taxpayers with incentives to invest, money will go elsewhere. The looming expiration of current investment tax rates and the emerging debate on tax reform provide a critical opportunity to develop a tax code that will help America compete and win in the 21st century. Maintaining lower tax rates for capital gains and dividends should be a cornerstone of any pro-growth tax code moving forward.

Jim McCrery

The Alliance for Savings and Investment