Corporations responded to the lower rates on dividends by paying out more of their profits, which raises the returns to those holding stock and thus increases equity prices. Both trends strengthen Americans’ retirement savings. As recent actions by Google, Apple and scores of other companies attest, corporations today find it more difficult to sit on cash instead of rewarding shareholders with dividend payouts.
With the expiration of the 2003 tax law at the end of this year, taxes—not only on capital earnings but also on ordinary incomes—will return to the much higher levels that previously existed.
This would be devastating to the fragile economic recovery, and to every American still looking for work. Combined with the expiration of temporary payroll tax relief, the United States faces what has now been labeled “taxmageddon”—a fiscal headwind so strong that it threatens a swift return to recession.
What seems to be lacking is a clear path to the future.