While Washington pols pose and posture on whether to raise taxes next year, American businesses are busy taking action to avoid the hit their shareholders are likely to take come January. It's an old lesson that liberals never seem to learn. No matter how clever the tax hikers think they are, those who stand to be hurt by higher taxes usually figure out a way to protect themselves.
The Obama administration hopes to raise more revenue by allowing the top tax rate to rise to 39 percent (or 43.4 percent if you include the new tax to pay for Obamacare) on those small businesses and individuals earning more than $250,000 a year. But it also intends to hike rates on long-term capital gains and dividends, which are now taxed at a rate of 15 percent regardless of the income of the taxpayer. The dividend rates will revert to ordinary income tax rates, a more than 250 percent increase even before the Obamacare taxes are included.
The rationale for lower tax rates on investment income is sound. First of all, individuals who have chosen to invest their own money by buying stock have already paid individual and, often, payroll taxes on the money they use to do so, and the corporation pays taxes on the profits it earns as a result of that investment. When the shareholder sells the stock at a profit, or receives a dividend based on the company's earnings, that money has already been taxed twice.
More importantly in the case of capital gains, taxing long-term gains at the same rate as ordinary income provides a disincentive for investors to invest for the long haul. The result is that there is less capital available for businesses, which lowers long-term economic growth.
But the administration is only interested in raising more revenues, any way it can. The problem is, it won't work.
Here's why: Companies are already protecting their investors by issuing special dividends and paying out regular dividends early to help them avoid rate hikes next year. The Wall Street Journal posts daily the companies that are making early and special payouts, which will be taxed at the 15 percent rate if they are earned in 2012. The list, now in the hundreds, is a virtual Who's Who of top businesses: Caterpillar, Cisco, Dillard's, Oracle, Wal-Mart and Walt Disney, to name a few. And it includes several "progressive" companies whose executives supported President Obama in 2008 and 2012.
Linda Chavez is chairman of the Center for Equal Opportunity and author of Betrayal: How Union Bosses Shake Down Their Members and Corrupt American Politics .
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