How do high dividend taxes impact a companys decision to pay dividends to shareholders?
• High tax rates on dividends can reduce the perceived value of a company’s stock and encourage it to raise capital through debt, since interest on debt is a deductible corporate expense for tax purposes; dividends are not. Companies that require investor capital, like utilities, generally raise capital through a balanced approach that employs both debt and equity. A high dividend tax rate can make it harder to keep the appropriate balance in place.
