In a study released by Ernst & Young last week, analysts profiled qualified dividend shareholders based on age and income. Their findings indicate that the benefits of continuing the 2003 Dividend Tax Rate Reductions for qualified shareholders would be far reaching.

Currently, the tax cuts created by The Jobs Growth and Tax Reconciliation Act of 2003 are set to expire on December 31, 2012. Ernst & Young found that "if current rates expire, dividend income will be taxed as ordinary income, with rates rising to as high as 39.6 percent" in addition to a 5 percent increase in the top tax rate on capital gains.

The expiration of current rates on dividend income and capital gains rates will also be further increased by the 3.8% Obamacare surtax on portfolio income. "Obamacare in 2013 also imposes a 3.8 percentage point surtax on" investment income, which would thus make the top dividend rate 43.4% and the top capital gains rate 23.8%.

The study's results from analyzing those who qualify for the lower tax rates on qualified corporate dividends found 25.4 million tax returns included qualified dividends in 2009 which represented "$123.6 billion of qualified dividends."

Overall, the study found that tax returns with qualified dividends had the following age and income profile:

  • 63% are from taxpayers age 50 and older
  • 32% are from taxpayers age 65 and older
  • 68% are from returns with incomes less than $100,000
  • 40% are from returns with incomes less than $50,000


In a second study released by Ernst & Young this week, analyst forecast that the long-run macroeconomic impact of not extending the 2003 tax rate increases would "result in significant increases in the average marginal tax rates (AMTR) on business, wage, and investment income." The study found that the tax rate increases would lead to fewer jobs, lower wages, less investment, and an overall smaller economy.

If nothing is done to extend the tax cuts of 2003 prior to the Fiscal Cliff in 2013, an enormous, far reaching sector of the population will be affected. As Americans for Tax Reform has previously stated, "capital gains and dividend rates" should remain at the 15% taxation levels currently in place.

As evidenced by both Ernst & Young studies, the 2013 increase in taxation of dividends as ordinary income, the increase on capital gains rates, and the Obamacare surtax on portfolio income would amount to a top dividend rate of 43.4% and a top capital gains rate of 23.8%. Taken together the tax increases and expirations under Obamacare would deal a crushing blow to the American economy, and stifle economic growth thereby negatively impacting a large portion of the American population.