Lew Hay: Don't raise taxes on investment income
Published: Saturday, October 6, 2012 at 8:26 a.m.
Last Modified: Saturday, October 6, 2012 at 8:26 a.m.
The fiscal cliff is rapidly approaching for America’s seniors and millions of taxpayers across the nation. Congress adjourned without preventing the multiple tax increases scheduled for January 1, and without ending the uncertainty over fiscal policy that represents unnecessary additional risk for private investment. Unless Congress acts immediately after the November election during a “lame duck” session, the crippling effects of Washington’s procrastination will be felt across our entire economy.
Floridians should be especially concerned about one particular tax increase that will fall disproportionately on seniors. Beginning next year, tax rates will soar on investment income from capital gains and dividends. The top tax rate on capital gains will jump from 15 to 23.8 percent and the top rate on dividends will nearly triple from 15 to 43.4 percent.
Millions of seniors would feel the pain of these higher rates immediately.
Given the low rates on interest-bearing investments such as certificates of deposit, many older investors have turned to dividend-paying stocks to supplement their income. And those dividend distributions have been growing. According to a J.P. Morgan study, total dividend distributions jumped from $340 billion in 2008 to about $680 billion in 2011.
Higher tax rates will change the equation for everyone. Dividend-paying companies could reduce the size of their quarterly dividend checks, which would devastate those relying directly on dividend income to help pay their bills. And if major investors shift their portfolios away from dividend-paying companies to assets with lower tax penalties, including those in other nations, every American with a retirement plan or mutual fund invested in U.S. dividend-paying stocks could take a hit as well.
Higher taxes on private investment would not only reduce returns for investors, but also make it more difficult for many companies to create jobs and increase the value we deliver to our customers. At NextEra Energy, Inc., under current tax policy, we’ve been able to raise the capital necessary to invest billions of dollars in our infrastructure over the last several years.
These investments in infrastructure deliver major benefits for our customers. At Florida Power & Light Company, our investments help keep reliability high and bills low over the long term. At NextEra Energy Resources, LLC, our investments help bring the benefits of renewable energy to customers in more than 20 states. Our company now employs about 10,000 people in Florida alone, and our ability to attract capital by paying dividends to our shareholders has been a major catalyst for our growth.
Discouraging investment in dividend-paying companies like NextEra Energy will impact many vital sectors of the economy – such as manufacturing, utilities, and telecommunications – that are creating jobs across the nation. Reducing the capital these sectors can raise in equity markets will force them to increase their debt financing. This, in turn, will lead to an even riskier economy with even more overleveraged companies.
The good news is that Congress still has time to act, and we still have the opportunity to make our voices heard. NextEra Energy has joined with other companies across our industry and across the nation to encourage more people to send our leaders a clear message: now is not the time to reduce dividend income through higher taxes and punish Americans who invest in our nation’s future.
Everyone who wants to help can join our advocacy campaign, Defend My Dividend (www.DefendMyDividend.org). Together we can stop tax increases on all investors, including millions of seniors, as well as prevent further barriers to job creation and economic growth. Keeping tax rates low will be good for American businesses, good for our economy, and good for all investors.
Lew Hay is Executive Chairman of NextEra Energy, Inc.
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