While the President and Congress have seemingly made little progress reaching a compromise that would help the country avoid the fiscal cliff, corporate America isn’t sitting idly by. Part of the fiscal cliff are tax increases to investment income like capital gains and dividend payments, and many firms are either speeding up regularly scheduled dividends or issuing unplanned dividends in order to help their shareholders avoid higher tax rates in the future.
The Bush tax cuts in 2003 lowered the top income tax rate on qualified dividends by 15%. With the expiration of those tax rates and with the introduction of taxes associated with President Obama’s healthcare law, the top tax rate on dividends is set to rise to as high as 43% for high-income earners. In reaction to this possibility, firms like Costco, Dillards, and most recently Dish Network, have been announcing one-time payments to their shareholders in order to funnel profits to investors at a much lower tax rate, while other companies like Walmart, Oracle, and Walt Disney have pushed up the date of previously scheduled dividends. According to the financial data firm Markit, U.S. firms are on pace to issue 134 special dividends in the fourth quarter of 2012, up from an average of 31 in previous years.