View Count: 166 |  Publish Date: December 11, 2012
Companies avert tax boost with dividends, bonuses

The wealthy look set to enjoy a windfall in the closing weeks of the year as companies push money out the door to beat the higher tax rates advocated by President Obama.
More than 150 companies, from Costco to Las Vegas Sands Corp., have declared special dividends totaling about $20 billion this quarter to avoid anticipated tax increases in 2013. Others, including law and private-equity firms, probably will pay bonuses, partnership distributions and commissions early for tax reasons, according to Lou Crandall, chief economist at Wrightson in New Jersey.
Were going to have a big jump in household income in the fourth quarter said Crandall. Its going to be in excess of $50 billion.
Much of that will go to upper-income Americans, the very people Obama has targeted to pay higher taxes, including Las Vegas Sands controlling shareholder and Chief Executive Officer Sheldon Adelson.
Of the $123.6 billion in qualified dividends reported to the government for 2009, about 52 percent was received by those making more than $250,000 for the year, according to the Internal Revenue Service.
Americans working on the production line are not seeing the kinds of gains the rich are enjoying. Average hourly earnings for production workers rose 1.3 percent in the 12 months to November after a 1.2 percent increase the prior month, the weakest since Labor Department records began in 1965.Less equal income
This is just another indication of how incredibly unequal the income distribution has become over the past 28 years, said Josh Bivens, research and policy director at the Economic Policy Institute, a Washington group that focuses on the economic condition of low- and middle-class Americans. Wages are less equal than they used to be and capital income is less equal than it used to be, and theres been a shift from labor income to capital income.
The money wont have much impact on consumer spending or economic growth because the wealthy are more likely to save rather than spend it, said Michael Feroli, chief U.S. economist for JPMorgan Chase. If they really wanted to spend, they would have spent by now, the former Federal Reserve economist said.Casino dividend
Adelson will get $1.2 billion as a result of the special dividend the casino company declared, according to Citigroup credit strategist Erin Lyons. Adelson and his wife, Miriam, contributed $33 million to two super PACs in the last three weeks of the presidential election campaign in an unsuccessful effort to defeat Obama.
Obama has said an increase in tax rates on income above $200,000 for individuals and $250,000 for married couples must be part of a deal to prevent the rest of the more than $600 billion in automatic spending cuts and tax increases from taking effect in 2013.
Under the presidents proposal, the top statutory tax rate on ordinary income would reach 39.6 percent, up from 35 percent, and the top rate on capital gains would be 23.8 percent, up from 15 percent. The maximum rate on dividends would go to 43.4 percent from 15 percent.In the long run
The government stands to benefit from higher revenue in the short run as companies and investors position themselves ahead of the end of the year. In the long run, the government might suffer, said Eric Toder, co-director of the Tax Policy Center in Washington.
The IRS will collect taxes on dividends that might not have otherwise been paid out when 2012 tax returns are filed. The Treasury Department also will enjoy higher revenue from capital gains taxes as investors unload shares to lock in profits before a possible rate rise in 2013.
More than 2 out of 5 U.S. investors surveyed last month said they are selling securities that have appreciated in price ahead of the end of the year. What may be lost is the ability of the government to tax that income at a higher rate in the future, Toder said.
Rich Miller and Alex Kowalski are Bloomberg reporters. E-mail:, Market Data Provided by Bloomberg News

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Time: 2:43  |  News Code: 30686  |  Site: San Francisco Chronicle
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