Firms paying dividends early to avoid tax hike if nation plunges into fiscal cliff

12/8/2012

As the nation gets close to plunging over the metaphorical 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 their shareholders.

More than 100 companies nationwide are paying dividends in advance this year so their investors won’t get taxed more heavily for the money 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 before the end of the year drew fire from one liberal-leaning tax reform group.

“This is just the masters of the universe taking care of each other,” complained Rebecca Wilkins, senior counsel at Citizens for Tax Justice, a Washington, D.C. research group that has been critical of corporate tax practices.

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 compromise, the rate will rise again. And that change — coupled with a surcharge also set to go into effect in January to help pay for Mr. Obama’s health care law — would boost the dividend tax rate for the county’s highest earners to 43.4 percent, experts say.

As a result, Standard & Poor’s has seen a big jump in companies issuing dividends before the law runs out. In November, 228 companies awarded “extra” dividends, compared with only 72 in November of last year.

Companies that moved dividend payments from 2013 to 2012 — or have announced an extra dividend before 2013 — include Wal-Mart Stores Inc., Campbell Soup Co., Dillard’s Inc., and Ethan Allen Interiors Inc.