dividend paying stocks are primarily held by older, middle-income americans

Higher taxes on savings and investments will negatively impact seniors, middle-class families and workers, even if the tax increases are targeted at high-earners. 

Seniors and Middle-Class Families

Dividend Paying Stocks are Primarily Held by Older, Middle-Income Americans. Even a Small Increase in the Top Dividend Tax Rate Will Reduce the Savings of These Americans by Causing the Value of Their Investments to Drop.

Dividend paying stocks are more likely to be held by older, middle-income Americans than anyone else. According to one analysis of a single year’s tax returns, 25 million people reported earning dividend income. Sixty-three percent were 50 or older. Nearly seventy-percent earned less than $100,000 per year.

These are the Americans who will be hurt by any increase in the dividend tax. Studies have found that raising taxes on investment income lowers the value of dividend-paying stocks. Higher taxes, even if they are only on the wealthy, will lower the value of investments and result in fewer dividend payments – hurting seniors even more.

Congress should not raise revenue at the expense of seniors and middle-class families. It should leave dividend taxes alone.

  • Seniors and middle-income Americans are the primary recipients of dividend income. Of the 25 million tax returns with dividends in one analysis of a single year’s tax returns, 63% were from taxpayers age 50 and older, and 68% were from returns with incomes less than $100,000. Devaluing investment in dividend-paying companies would negatively impact the seniors that rely on their income. (EY, The Beneficiaries of the Dividend Tax Rate Reduction: A Profile of Qualified Dividend Shareholders)
  • Tax Increases on Dividends Would Put Savings and Investment at Risk. Over $17 trillion in retirement assets are held by American citizens, with many of them nearing retirement age and looking to live comfortably. An increase to dividend taxes would drive down stock prices and negatively impact the retirement accounts of seniors, as well as families, who need the money most. (SIFMA, October 2019). According to one analysis, an increase of the top rate of the dividend tax by 5% to 25% would decrease a dividend-paying company’s stock price by 6%. (Barclays, 2012)
  • Tax Increases Would Result in Fewer Dividend Payments. The level of taxes on dividends has an inverse relationship to the number of companies that pay a dividend. So if the tax rate on dividends increases—even if it’s only for high earners – less dividend money will be paid out, hurting investors at all income levels. Following the 2003 dividend tax cut, annual dividends paid by S&P 500 companies rose by $22 billion, with 22 new companies opting to pay dividends. At the same time, overall equity values increased by more than $2 trillion. In a reverse situation, in which dividend taxes were increased, these same companies would likely reduce their dividend payments, hurting the seniors, savers, and pension holders that are the largest recipients of these payments and who are the most reliant on the income from them.(Cato, 10/11/04)
  • Tax Increases Also Threaten Pensions. Dividend-paying companies are American strongholds like utilities, Verizon, AT&T, Ford, and Coca-Cola. These are often companies that employ union employees, provide health care, and provide pensions. Any decrease in their stock price of these companies caused by changes to the dividend tax will hurt the pensions of lifelong employees, as companies typically put a large amount of their own stock in employee pensions. Separately, pensions at companies across the country regularly invest in these companies stocks, and any loss in value – which could be as much a 6% coming out of 5% increase in the dividend tax – would hurt retirement accounts.
2007 Tax Returns with Dividends

U.S. Workers

Higher Taxes on Investments Make It Harder for Businesses to Attract Capitol, Leading to Lower Wages and Fewer Jobs

Tax incentives for investment income do more than just benefit seniors and middle-income investors, they also help support economic growth and capital investments that lead to job creation and higher wages.

The U.S. economy is still struggling to recover to pre-pandemic levels. It would be a mistake to raise taxes on investment income in this uncertain economic environment. An increase in the dividend tax or tax on capital gains will put businesses at risk, causing more layoffs, lowering wages and creating further economic damage.

Instead of raising these taxes, Congress should focus on policies that create jobs and economic growth.

  • Previous tax increases on investment income have been followed by periods of slow growth. A Small Business & Entrepreneurship Council analysis found that over the past century, there have been five instances of substantive cuts in the capital gains tax. In each case, the economy benefited from these reductions. In contrast, there have been two instances where an increase in the capital gains tax clearly had a negative impact on the economy.
  • Tax incentives for investment create strong growth. When dividend taxes are relatively low, economic growth has followed, leading to gains for shareholders. Following a 2003 dividend tax cut, annual dividends paid by S&P 500 companies rose by $22 billion, with 22 new companies opting to pay dividends. At the same time, overall equity values increased by more than $2 trillion. (Cato, 10/11/04)
  • Tax incentives for investment are especially important in a slow economy. The U.S. economy is in a recession, and it’s not clear when the economy will return to pre-COVID conditions. An increase in investment income taxes will put businesses at risk, causing more layoffs, lowering wages and creating further economic damage.
  • Tax incentives for investment help America compete globally. It is important current rates are supported. Raising taxes on dividends will make American businesses less competitive and put jobs at risk. Not only will it decrease the value of dividend-paying stocks, it will also lead many businesses to take on new debt, which will increase the likelihood of closures and layoffs during tough economic times