Congress Needs to Act Now to Avoid the Fiscal Cliff
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CHARLOTTE, N.C., Dec. 12, 2012 /PRNewswire/ -- Much has been said in Congress and the media about how the "fiscal cliff" could affect the US economy. If Congress fails to act before the end of this year, not only will investors in all income brackets be affected; companies and communities also will feel the negative impact.
The fiscal cliff is a combination of expiring tax cuts and across-the-board government spending cuts scheduled to become effective January 1, 2013. Tied to the fiscal cliff is a plan to significantly increase the tax rate on dividend income.
I visited Capitol Hill recently with other utility chief financial officers to urge members of Congress to act immediately to resolve this economic uncertainty. We also stressed the importance of parity in tax rates between dividends and capital gains.
As part of the fiscal cliff, the tax rate on dividends will increase from 15 percent to as high as 43 percent. The tax rate for capital gains, while increasing, will be capped at 24 percent.
Simply put, the tax code—regardless of your income tax bracket—would make your $1 investment in a growth stock much more appealing after taxes than the same $1 in Duke Energy stock.
Congress should not pick winners and losers between growth stocks and dividend-paying stocks in terms of tax rates.
Why this matters to everyone
Nearly 60 percent of utility stocks are owned by people who have incomes of less than $100,000, according to a recent Ernst & Young study.
Allowing the dividend tax to expire will be costly for all classes of investors, regardless of their income level. If lawmakers fail to extend the current tax treatment, the tax rates on qualified dividends will increase by as much as 164%.
Without the extension of the dividend tax treatment, shareholders could pay—in taxes— as much as 40 cents of every $1 received in dividends from Duke Energy.
Fair dividend treatment benefits consumers
A decrease in the value of Duke Energy stock will not only affect investors who hold shares in tax-free retirement accounts but also will likely increase our company's borrowing costs.
That, in turn, could increase the cost of critical infrastructure projects currently planned by our company to modernize our power plants and energy distribution system.
And that, in turn, could impact the customers and communities we serve.
Long-term investors are an essential part of the utility business. They provide capital that allows our company to meet its mission of delivering energy that's reliable, affordable and increasingly clean.
Contact your representatives in Congress and urge them to take action before the end of the year.
You can e-mail or write your members of Congress through Defend My Dividend at www.defendmydividend.org, or call 888-443-5863.
SOURCE Duke Energy