WASHINGTON -- As negotiations to avert the so-called fiscal cliff intensify, corporate lobbying groups are pushing key tax perks that benefit the wealthy. A coalition of financial institutions, fossil fuel companies, telecommunications firms and even the cigarette company Altria are teaming up to block a tax increase on dividends -- a policy that overwhelmingly aids the rich.
The corporate call for lenient policies on high-income individuals comes as lawmakers from both political parties call for higher tax revenue as part of any deficit-reduction package.
The corporate coalition, known as The Alliance for Savings and Investment, is composed exclusively of corporations and lobbying groups. Major companies include AT&T, Verizon, Coca-Cola and Altria, while lobbying groups include two organizations representing Wall Street, another representing the natural gas industry and another that works on behalf of major electricity companies like Duke Energy, PEPCO and Consolidated Edison.
The group is currently running a misleading television ad urging Congress to extend the low tax rate on dividends that is currently set to expire at year-end. The ad portrays two retired seniors worrying that higher dividend taxes will evaporate their retirement savings. The group has also commissioned multiple studies by the accounting firm Ernst & Young suggesting that an increase on dividend taxes will harm seniors.
In fact, the low tax rate on dividends predominantly benefits the wealthy. When a company turns a profit, it can either hold onto its money to invest in new projects or pass on the money to its shareholders as a dividend. Provided this stock has been held for at least a few months and is issued by a U.S. company, these dividends qualify for the special 15 percent tax rate on capital gains, rather than the higher tax rate on ordinary income, which is currently 35 percent for the wealthiest Americans.
Most low- and middle-class people of all ages are invested in stocks through their retirement plans (401k accounts and IRAs). These accounts are exempt from taxes on dividends, regardless of the official tax rate. As a result, they would not be affected by an increase on dividend taxes. Only 18 percent of households reported even lightly taxed dividend income on their tax returns, according to a HuffPost analysis of official IRS data from 2009. Senior citizens with financial worries generally rely either on Social Security for their income, or on a combination of Social Security and a retirement plan. Most middle-class seniors affected by higher tax rates on dividends do not rely heavily on those dividends for their retirement security but rather on their 401ks, IRAs and Social Security payments.
Most low-tax dividends, moreover, accrue to the wealthy. Over 33 percent of such dividends go to millionaires, who comprise less than 1 percent of the population. More than 52 percent of dividends accrue to households making at least $250,000 a year, and over 72 percent to households that earn more than $100,000 a year.
Some of these people are retired but still make six figures or more each year.
The Alliance for Savings and Investment's ad does not specify how lawmakers should avert the rate hike, but the group's website suggests they should do so by implementing a second tax boon for the rich.
In 2003, Congress gave dividends a favorable treatment as part of the Bush tax cut package, taxing dividends at the capital gains rate. As a result, Congress can alter the tax rate on dividends either by targeting dividends themselves or by raising the rate on capital gains.
Over 50 percent of all capital gains over the past two decades have accrued to the wealthiest 0.1 percent of taxpayers, according to The Washington Post, while the richest 5 percent of Americans receive 80 percent of all capital gains.
The Alliance for Savings and Investment, which declined to comment for this article, is just one of several corporate lobbying groups that are pushing to include tax perks for the wealthy and large corporations in any deal to avert the fiscal cliff. The Campaign to Fix the Debt has organized dozens of corporate CEOs to advocate for $134 billion in tax breaks for Fortune 500 companies as part of any deal to avert the fiscal cliff, according to an analysis by the Institute for Policy Studies, a liberal think tank.