Dividends are payments made to shareholders by a corporation or partnership. Capital gains are profits realized on assets (stocks, bonds, commodities, or property) over a period of time.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the top tax rate on capital gains and dividend income to 15 percent through December 31, 2008. In 2006, Congress extended the rate reductions for two years through December 31, 2010. Without Congressional action, beginning in 2011, the maximum tax rate on capital gains and dividends would have increased to 20 percent and 39.6 percent, respectively. Those rates would have risen again by 3.8 percent each due to the expansion of taxable income eligible for the Medicare health insurance tax, which was included in The Affordable Care Act of 2010.
On Friday, December 17 just after midnight, the House of Representatives approved the White House and Republican tax compromise legislation by a vote of 277 to 148, sending it to President Obama who immediately signed it into law. The package, which includes extensions of all the 2001 and 2003 Bush tax cuts, does not include a Build America Bonds (BABs) extension or any of the other municipal bond provisions that were in the stimulus law, including the alternative-minimum tax (AMT) holiday or the extension of the $30 million small issuer limit for bank-qualified bonds.
The $800 billion tax compromise bill, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, includes an extension of capital gains and dividends rates at 15 percent, a two-year extension of the current tax rates for all income levels, a 13-month unemployment insurance extension, among many other provisions.
Kenneth E. Bentsen, Jr., executive vice president, public policy and advocacy, applauded the House’s passage of legislation that would extend, for two years, the current rates on capital gains and dividends tax rates.
“The House took a necessary and important vote today to extend the current taxes rates on capital gains and dividends for two years. This will help put America’s economic recovery on firmer ground. Keeping tax rates low for capital gains and dividends helps encourage savings and investment, thus promoting economic growth and job creation,” Bentsen said. “SIFMA is also pleased the Congress included in this legislation extensions of certain business tax extenders that are crucial for American businesses to continue to contribute to economic growth without additional tax burden.”
Prior to the final House vote, Democrats tried to submit an amendment that would change the estate-tax provision in the bill. That amendment failed, 233 to 194.
