Deliver Your News to the World

New Study Documents Benefits of Capital Gains & Dividend Tax Cut After 2 Years; Tax Cut Spurs Higher Levels of Growth, Shareholder Wealth, & Dividends


WASHINGTON, June 9 -- Today, the American Shareholders Association (ASA) released a new study documenting the benefits of the capital gains and dividend tax reductions signed into law in May 2003.

In the two years since President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA), the tax cut has boosted economic growth and investment all while helping to lift equity markets and dividend payments to shareholders. The study further examines the true impact the tax cut had on the deficit and concluded the effect on an increasing deficit has been smaller the projected. More importantly, capital gains tax collections are higher than expected and combined with the feedback effect of the dividend tax cut, the two tax cuts had very little if, if any, effect on the deficit.

“After two years of reduced tax rates, there is no doubt excessive taxation of capital gains and dividends discourages investment, disenfranchises shareholders, and hurts the economy,” said Daniel Clifton, executive director of ASA. “Since that burden has been reduced, after tax returns are up, more companies are paying dividends, corporate governance has improved, and the economy continues to grow above historical averages. The next step for Congress is to make this tax cut permanent.”

The study can be accessed at:

Among the study’s key findings:

-- Economic growth has averaged 4.4 percent growth since the tax cut was implemented, 90 basis points higher than the historical average.

-- 2003 and 2004 economic growth levels surpassed Congressional Budget Office (CBO) estimates by 150 basis combined, resulting in $300 billion of additional growth, which is roughly $2,500 per household.

-- This growth was fueled partially by the capital gains and dividend tax reductions, which reduced the cost of capital for businesses. Consequently, more companies are making investments in equipment and buildings, resulting in higher levels of job creation and income growth.

-- The 25 percent capital gains tax reduction boosted the after tax return on equities, which makes stocks more attractive relative to bonds. As a result, equity markets immediately increased and to date has returned $3.6 trillion of new wealth to shareholders.

-- The reduction of the double taxation on dividends has reversed the 25-year decline of dividend paying companies. A net 34 companies on the S&P 500 initiated a dividend in the two years since the dividend tax cut was implemented.

-- S&P 500 dividend increases are up 59 percent since the tax cut was implemented. In the past 12 months 305 companies on the S&P 500 increased their dividend compared to just 192 in the 12- month period prior to the tax cut.

-- With more companies initiating and increasing dividends, shareholders have received record amounts of cash. 2004 was the largest percentage increase (12.7 percent) and dollar amount ($20 billion) of S&P 500 dividend distributions.

-- According to S&P the combined savings of additional dividend payments and tax savings equals $100 billion from 2003- 2005 for S&P 500 shareholders.

-- This dividend cash is being reinvested back into the market, which is the driver of long-term gains for shareholders. In fact, a recent S&P study found that reinvested dividends increase the 20 year return for shareholders by 523 percent compared to just the price return itself.

-- Corporate governance has improved as earnings growth and dividend growth have become correlated for the first time in 4 decades.

-- Due to the economic growth effects of the tax cut, tax revenues have surpassed the original budget forecast in each of the three fiscal years the tax cut was implemented in.

-- Roughly 63.7 percent of the original tax cut “cost” to the Treasury has been recouped through increased levels of growth, investment, asset values, and dividend payments.

-- Higher levels of tax collections have worked to reduce the deficit, which is falling much greater than initially expected.

-- Capital gains tax revenue is set to exceed the CBO/JCT forecast by $14 billion in FY 05 and $16 billion in FY 06.

-- Roughly $5 billion of the dividend tax cut has been recouped through higher than expected dividend payments.

-- All together, the combined effect of the dividend and capital gains tax reduction had little, if any, effect on the Federal Treasury, while boosting economic growth, investment, shareholder wealth, and dividend payments.


The American Shareholders Association is a non-partisan, not-for-profit organization dedicated to analyzing public policy affecting shareholders. For more information please contact Daniel Clifton at 202-549-7803 or by e-mail at


This news content was configured by WebWire editorial staff. Linking is permitted.

News Release Distribution and Press Release Distribution Services Provided by WebWire.