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  • Businesses Anticipating Stormy Weather on the Tax Front

    Like a falling barometer indicates impending bad weather, the actions of businesses are an early warning sign when Congress is about to harm the economy. Congress and the President continue to drag their feet on extending the 2001 and 2003 tax relief. The common assumption is that some compromise will be reached where the tax cuts are extended for all taxpayers for at least a few years. Businesses are not so deceived. They are anticipating higher taxes and acting accordingly.

    The latest sign came from Regal Cinemas, which decided this week to offer an extraordinary dividend payment to its shareholders before the end of 2010. The $1.40 per share dividend payment will reduce the Regal’s retained earnings by $210 million.

    Regal offered the special dividend now because they believe the tax rate on dividends will rise from its current 15 percent rate to 40 percent in 2011. Regal thinks the dividends tax rate is going up because, despite all the back and forth in Congress this week, it expects Congress to allow the 2001 and 2003 tax relief to expire. Many other businesses will soon follow Regal’s example and return value to shareholders through one-time dividend payments before Uncle Sam takes a bigger chunk of those payments next year.

    The retained earnings businesses will use to pay these special tax-driven dividends could otherwise be used to invest in new projects and add new workers. Instead, businesses are using the funds to compensate their shareholders before the jump in the dividends tax rate. This is one of the contributing factors to the slow economic recovery and anemic job growth.

    Seniors also stand to be hurt by the higher tax dividend tax rate. Once businesses pay out special dividends this year, they will undoubtedly cut back on dividends payouts next year because of the higher tax rate and look to return value to their shareholders in other ways. Fewer dividend payouts will punish seniors that depend on the income from dividends to supplement their Social Security.

    A higher dividends tax rate would also depress stock prices. This would be a double-whammy for seniors, because they would earn smaller gains when they sell their stock holdings to further supplement their income.

    The troubling dividends tax hike is just a part of the massive tax hike that would occur if all the other 2001 and 2003 tax cuts expire on December 31. The economic damage from those tax hikes would further punish the already battered economy.

    Hopefully Congress will prove the business community wrong and extend all the tax cuts for the sake of the ailing economy. But just like they take cover when the barometric pressure plunges, Americans should start preparing for the economic storm that would result from the tax hikes that businesses tell us are on the way.

    Posted in Economics [slideshow_deploy]

    3 Responses to Businesses Anticipating Stormy Weather on the Tax Front

    1. George Colgrove, VA says:

      This is the results of the storm that hits us here on main street.

      Tax revenues for 2010 is estimated to be 11% down from 2009. If this practice goes into place, it might edge up revenues for 2010. Might! Will this be enough to make up the 11% decline? It will not. But what it will do is seriously reduce investment income for 2011. If investment income goes down again in 2011, then tax revenue will fall sharp. Earned income is on a two year decline and 2011 is already looking like another decline. The fact is we cannot be taxed any more. The spiral has started. If we do not cut significantly we will go into debt by another $2T in 2011.

      The only sector of our economy that is doing well is the federal government, its employees and its contractors. The government is serving itself – not the people. This data tells it all. It does not lie – like the Federal Government does. This is Bush’s and Obama’s (i.e. the Federal Government’s) redistribution has resulted in. While incomes all over America has either plateaued or sharply declined this is what is happening around DC. (Sources Forbes, Newsweek and Wikipedia).

      The top richest counties, and their average incomes. See how the counties surrounding DC are getting richer at the cost of the rest of the country.

      2000

      (4 out of the top 10) (2 out of the top 3)

      Ranking/county/average income

      1 Douglas County, Colorado $82,929

      2 Fairfax County, Virginia $81,050

      3 Loudoun County, Virginia $80,648

      4 Hunterdon County, New Jersey $79,888

      5 Los Alamos County, New Mexico $78,993

      6 Morris County, New Jersey $77,340

      7 Somerset County, New Jersey $76,933

      8 City of Falls Church, Virginia $74,924

      9 Santa Clara County, California $74,335

      10 Howard County, Maryland $74,167

      Since the advant of government growth after 9/11

      2006

      (5 out of the top 10) (3 out of the top 3)

      1 Fairfax County, Virginia $100,318 (up 24%)

      2 Loudoun County, Virginia $99,371 (up 23%)

      3 Howard County, Maryland $94,260 (up 27%)

      4 Hunterdon County, New Jersey $93,297

      5 Douglas County, Colorado $92,125

      6 Somerset County, New Jersey $91,688

      7 Morris County, New Jersey $89,587

      8 Montgomery County, Maryland $87,624

      9 Arlington County, Virginia $87,350

      10 Nassau County, New York $85,994

      2008

      (6 out of the top 10) (3 out of the top 3)

      1 Loudoun County, Virginia $110,643

      2 Fairfax County, Virginia $106,785

      3 Howard County, Maryland $101,710

      4 Somerset County, New Jersey $103,227

      5 Hunterdon County, New Jersey $100,947

      6 City of Fairfax, Virginia $98,133

      7 Morris County, New Jersey $97,565

      8 Douglas County, Colorado $97,480

      9 Arlington County, Virginia $96,390

      10 Montgomery County, Maryland $93,999

      2010

      (7 out of the top 10) (3 out of the top 3)

      Rank/County/2000 placement/ave. income 2010/ ave. income 2000/(border DC?)/income increase

      1: Loudoun County, Va.(3) $114, 204/$80,648 (One county away from DC) (up 42%)

      2: Fairfax County, Va.(2) $102,499/$81,050 (Border county of DC) (up 26%)

      3: Howard County, Md.(10) $101, 940/$74,167 (One county away from DC) (up 37%)

      4: Morris County, N.J.(6) $96,787/$77,340 (up 25%)

      5: Arlington County, Va.(51) $96, 218/$63,001 (Border county of DC) (up 53%)

      6: Montgomery County, Md.(13) $94,420/$71,551 (Border county of DC) (up 32%)

      7: Nassau County, N.Y.(12) $92,776/$72,030 (up 29%)

      8: Somerset County, N.J.(7) $89,871/$76,933 (up 17%)

      9: Calvert County, Md. (32)$89,289/ $65,945 (One county away from DC) (up 35%)

      10: Charles County, Md. (57) $89,115/$62,199 (One county away from DC) (up 43%)

      The largest income increase and one of the largest climbs up the ranking chart is Arlington, VA. The home of the DoD. In that same 10 years, the DoD budget nearly doubled from $350B (+/-) to $660B (+/-). Wonder if there is a correlation?

    2. George Colgrove, VA says:

      To compare with the richest counties surrounding DC Post I made earlier.

      American Median Household Income

      Sources: USA Today and Wikipedia

      2000 – $52,500 – DC area median Income 42% to 54% Higher than America

      2001 – $51,356

      2002 – $50,756

      2003 – $50,711

      2004 – $50,535

      2005 – $51,093

      2006 – $51,473 – DC area median income 70% to 95% Higher than America

      2007 – $52,163

      2008 – $50,303 – DC area median income 87% to 120% Higher than America

      2009 – $49,777

      [2010 - $49,777 – DC area median income 79% to 129% Higher than America]

      2010 is a conservative estimate – predictions say that 2010 median income will go down from 2009.

      Source: Census Bureau

      CNN:

      September 28, 2010: 2:55 PM ET

      NEW YORK (CNNMoney.com) — Washington, D.C.'s workers enjoy the highest salaries of any major U.S. city., with a median household income of $85,198. [71% higher than the median for the nation]

      Conclusion:

      Where Americans incomes have stayed stagnate or have decreased since 2000 and since the tragic day on 9/11, the Greater District of Columbia incomes have skyrocketed. 9/11 has had a tremendous positive effect on the federal government employees and contractors. America gave up her freedoms and liberties and DC has reaped the rewards. Where America has suffered under the federal government, federal employees and the ruling class have lived lavishly. The federal government serves itself, not the people. This data shows that.

    3. George Colgrove, VA says:

      To show the data a different way:

      Household Incomes in America vs The Greater District of Columbia area

      2000 USA: $52,500 DC: $74,167 to $82,929

      2006 USA: $51,473 DC: $87,350 to $100,318

      2008 USA: $50,303 DC: $93,999 to $110,643

      2010 USA: $49,777 DC: $92,776 to $114, 204

      2000 – 2006: USA Dropped 2% – DC went up 19%

      2006 – 2008: USA Dropped 2% – DC went up 9%

      2008 – 2010: USA Dropped 1% – DC went up 1%

      2000 – 2010: USA Dropped 5% – DC went up 32%

      Wonder why there is a bad business climate throughout the country – unless of course you're in DC. Business here is not based on making things for providing services people are willing to pay for. The climate here is based on extorted tax money collected from suffering Americans to prop up the federal government and its programs. Moreover, people here are living lavishly because of that.

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