New Study Flags Benefits Of US Dividend Tax Cut

by Mike Godfrey. Tax-News.com, Washington

30 June 2004

A new academic study conducted by the National Bureau of Economic Research has found that the 2003 cut in dividend tax has contributed greatly to an increase in dividend payments made by US corporations in the last year.

Following the cut in the maximum dividend tax rate from 35% to 15% on qualifying shares as part of President Bush’s fiscal stimulus package, the NBER report observed “a sharp and widespread surge in dividend distributions…along several dimensions.”

The research found that after more than two decades of decline in the number of firms paying dividends, 2003 saw a dramatic and almost instant turnaround, with nearly 150 firms initiating payouts, adding more than $1.5 billion to aggregate quarterly dividends.

Furthermore, NBER found that companies that had been issuing dividends before the tax cut markedly increased their payouts last year, whilst others commenced multiple and regular dividends as opposed to one-off special payments.

“The surge in regular dividend payments after the 2003 reform is unprecedented in recent years,” noted the report.

“The Tax Reform Act of 1986, which also reduced the top individual tax rate on dividends significantly, led to a temporary, concentrated rise in special dividend payments. However, the number of regular dividend payers did not rise much after the 1986 reform,” NBER’s research concluded.

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