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CHPT 14 - Payout Policy
CHPT 14 - Payout Policy
Payout Policy
Learning Goals
The Jobs and Growth Tax Relief Reconciliation Act of 2003 significantly
changed the tax treatment of corporate dividends for most taxpayers.
– The act reduced the tax rate on corporate dividends for most
taxpayers to the tax rate applicable to capital gains, which is a
maximum rate of 5 percent to 15 percent, depending on the
taxpayer’s tax bracket.
– This change significantly diminishes the degree of “double taxation”
of dividends, which results when the corporation is first taxed on its
income and then when the investor who receives the dividend is
also taxed on it.
– After-tax cash flow to dividend recipients is much greater at the
lower applicable tax rate; the result is noticeably higher dividend
payouts by corporations today than prior to passage of the 2003
legislation.
– The American Taxpayer Relief Act of 2012, extended the 15% rate
on capital gains and dividends for taxpayers in all but the highest
tax bracket.
• Chapter Cases
• Group Exercises
• Critical Thinking Problems
The corporate
treasurer, Margaret
Jennings, has been
presented with
several competing
investment
opportunities by
division and product
managers. However,
funds are limited
and Jennings must
choose among the
investments.