Dividends now avoid fiscal cliff tax rate later

  • San Jose Mercury News
  • December 5, 2012 - 7:43 PM

As the nation gets close to plunging over the fiscal cliff, triggering what could be massive tax increases and spending cuts in January, scores of businesses are taking steps to soften the landing for shareholders.

More than 100 companies are paying dividends in advance this year so investors won't get taxed more heavily next year. And experts believe the number of firms jumping on the early-dividend bandwagon is bound to increase.

"We're going to see an avalanche," said Howard Silverblatt, a senior index analyst with Standard & Poor's. "It's a no-brainer. If I'm a shareholder and you don't do that, you're going to hear from me."

But the rush to pay dividends drew fire from one liberal-leaning tax reform group.

"This is just the masters of the universe taking care of each other," said Rebecca Wilkins, senior counsel at Citizens for Tax Justice, a Washington, D.C., research group that has been critical of corporate tax practices under current law. "It's pure self-interest."

While paying dividends early poses little financial problem for corporations, she added, it will be "detrimental to the U.S. Treasury."

The fiscal cliff refers to the year-end expiration of 2003 legislation that cut taxes, reducing the rate for dividends from 38.6 percent to 15 percent. Unless Congress and President Obama work out a deal, the rate will rise again. That change -- coupled with a surcharge also set to go into effect in January to help pay for Obama's health care law -- would boost the dividend tax rate for the county's highest earners to 43.4 percent, experts say.

Standard & Poor's has seen a big jump in companies issuing dividends before the law runs out. Some moved up the payment date from 2013. Others are awarding extra dividends.

Companies that have moved their payments from 2013 to 2012 or have announced an extra dividend before the end of the year include Wal-Mart, Campbell Soup, Dillard's and Ethan Allen Interiors.

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