Exclusive: Power company CFOs blitz Congress on dividend taxes

WASHINGTON Wed Nov 28, 2012 12:46pm EST

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WASHINGTON (Reuters) - Some chief financial officers blitzing the U.S. Capitol on Wednesday to lobby for low dividend tax rates suggested they might be able to stomach a small increase to pre-empt a huge jump due to kick in at year's end if Congress does not act.

Finance chiefs from the biggest U.S. power companies - including Duke Energy Corp and Southern Co - were in Washington to meet top lawmakers looking for ways to avert a $600 billion "fiscal cliff" of taxes and spending cuts.

Without action from Congress, the tax rate on dividends will rise to the ordinary income tax rate, as high as 39.6 percent for the wealthiest Americans. Dividends are now taxed at 15 percent for the top four tax brackets and zero at the bottom.

Five energy company CFOs told Reuters they were lobbying for the lowest dividend rate possible but stressed parity with taxes on capital gains and the need for lawmakers to compromise to avoid going over the fiscal cliff.

"We would be supportive of some movement in the rate," said Art Beattie, chief financial officer of Southern, the second-biggest power company by market value.

His biggest concern was that the tax on dividends not be delinked from the tax on capital gains.

Capital gains are now taxed at 15 percent - the same rate as for dividends. If Congress fails to act, the capital gains rate will rise to 20 percent, making it much lower than the top, 39.6 percent rate for dividends.

PARITY SOUGHT

Beattie, who with the other CFOs, was due to make the case to leaders in the House of Representatives on Wednesday, said raising dividend taxes above capital gains discriminates against companies like Southern.

"If you delink them you are penalizing dividend-paying companies as opposed to companies like Apple Inc, which is a growth company and doesn't pay out much in dividends," Beattie told Reuters.

Martin Lyons, CFO of Ameren Corp, an electric energy provider in the middle western part of the United States, said any increase in the tax rate would be detrimental to his company's stock price and cost of capital.

"To the extent that there needs to be some increase - that is where the parity becomes very important to us," he said.

President Barack Obama, in his most recent budget, has proposed raising dividend taxes back to ordinary income tax rates, but many Washington insiders believe Democrats will settle on a rate of 20 percent if a deal is struck. Republicans generally want the rate to remain at 15 percent.

All five energy companies CFOs who spoke with Reuters, including those from Public Service Enterprise Group Inc, Duke and Pinnacle West Capital Corp, said they were not considering declaring special dividends ahead of potential tax increases, in contrast to such big companies as Costco Wholesale Corp and Wal-Mart Stores Inc.

"They (investors) are not investing in Duke to get a dividend in the fourth quarter. We are part of the income base of people who own our stock," said Lynn Good, the CFO of Duke, the biggest electric power company in the United States.

In 2003, President George W. Bush and Congress cut taxes on capital gains and dividends, which mostly affect high-income taxpayers. These cuts are set to expire at the end of 2012.

In addition, a new, 3.8 percent investment tax on households making more than $250,000 a year - part of Obama's healthcare law - kicks in next year.

Other big dividend-paying companies, including Altria Group Inc, AT&T Inc and Verizon Communications Inc, are among those pressing lawmakers to avoid a tax increase, with executives and surrogates making frequent visits to Capitol Hill.

The visits come amid a separate blitz of CEOs meeting with lawmakers, including leaders of Aetna Inc and Honeywell International Inc, as the business community steps up its pressure on Congress to forge a deal.

(Reporting by Kin Dixon; Additional reporting By Patrick Temple-West and Nanette Byrnes; Editing by Howard Goller and Steve Orlofsky)

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Comments (6)
Acetracy wrote:
A sound policy on dividends and long term capital gains tax rates would be have the tax rate go up by $ brackets. For example, the first $50000 would be tax free, $50000 to $250000 at 15%, above $250,000 tax at highest marginal tax rate of 39%. Right now the low tax rate is a complete give away to the super rich. Realize, with the average yield on the S&P 500 at 2%, a $50,000 dividend income means assets in excess of $2.5 million – not a small fortune for most Americans.

What these CFOs and big companies should lobby for is a much higher rate on short term capital gains (investments held under one year). It is common wisdom that with programed trading, derivatives, hedge funds, etc. a holding period of one day or even a minute is the norm. THIS IS NOT INVESTING, IT IS SPECULATION. Short term gains under a year should be taxed at 50%, gains on trades under a week duration should be at 80%, and all derivate income and gains should be taxed at 80% as well..

A sound policy on dividend and capital gains must reward the investor, esp. the small investor who is absent from this market. The first $50,000 in gains should be taxed at a much lower rate that gains of $250,000, $1 million, and $10 million. It makes no sense that the small investor pays the same if not higher rates than the super rich.

Nov 28, 2012 2:17pm EST  --  Report as abuse
robb1 wrote:
Capital gain held more than 2 years should be indexed by inflation and taxed only for the net gain inflation adjusted.

Nov 28, 2012 2:35pm EST  --  Report as abuse
flashrooster wrote:
This demonstrates what is wrong with our government. Because of the way our system is set up, people who make up our government require lots of cash to run for office, or to keep their seats. The average American has little to donate to this purpose, so politicians and would-be politicians turn to our lucrative industries to fund their campaigns. But industry execs have become as savvy about working government officials to increase their bottom lines as they are with profiting from their businesses. They are extremely well-organized and will not give something for nothing. They expect a return on their “investments”. So this has become the main source of money for political campaigns, and also the modus operandi for how government officials do business. The needs of the people have become less and less important. It’s no coincidence that the American Middle Class has been shrinking in wealth and influence just as lobbying has increased in magnitude. They probably wouldn’t be surprised to learn that it exists, but most Americans would be shocked to learn just how far reaching industry influence on our government has become. Hedrick Smith recently published a great book that focuses on this appropriately titled How Stole the American Dream.

So instead of revamping our tax code in a way that is most advantageous for our entire country, it will be designed like a Frankenstein, this piece here (to appease this special interest group) and that piece there (to appease that special interest group), and so on. This appropriating of our Republic should be the #1 concern of Americans, because until we reform how we finance our elections, Americans–unless you’re a politically active millionaire or billionaire–no longer have representative government: we are no longer governed by we the people, as called for by our Constitution. And as long as we continue to play such a minor role in governing ourselves, we’ll continued to be governed by special interests whose objectives are starkly different than those of the American people. It is why our healthcare is so ridiculously expensive; it is why we channel trillions of tax dollars into our military-industrial complex; it is why the oil industry, the most profitable industry in the history of man, is able to pay little or no taxes and to convince the American people that global warming isn’t real, making us the only developed nation on earth that doesn’t accept the scientific community’s conclusion that we are at least contributing to global warming. And it is also why the federal government is collecting less in taxes, as a percentage of our GDP, than it has since 1950. And in 1950 we didn’t have the kind of debt we’re carrying now. It is also why the Republican Party is brazenly opposing the raising of taxes on the wealthy, even though public opinion–even among Republican supporters–unanimously agrees that taxes on the wealthy should rise to where rates were under Clinton, which are still historically low.

Nov 28, 2012 3:37pm EST  --  Report as abuse
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