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Dividend Debacle

Investors get caught in partisan crossfire.

Fortnightly Magazine - October 2010

proposal to keep the tax cuts intact for all taxpayers except those earning more than $200,000 a year.

With that kind of pressure from within their own party, House Democrats seem destined to pass a compromise tax bill in the lame-duck session that preserves most, if not all, of the 2003 tax cuts. At a very minimum, the highest tax rate for dividend income won’t rise beyond the top rate for capital gains.

So when the food fight is over, and the politicians get back to work, the industry’s worries might seem a bit overblown in hindsight. The practical effect for utilities will be virtually nil, even if rates go up for some taxpayers.

As Josh Peters, editor of Dividend Investor , told Morningstar’s Jeremy Glaser in a webcast earlier this year, “Dividends didn’t start to work for investors only in 2003, when the current tax treatment was brought about. Dividends have been working for investors and stocks for centuries.”