Utility stocks poised to fall off the dividend tax cliff?



For investors, one of the most pressing questions is whether the recent presidential election and the pending expiration of Bush-era tax cuts will result in higher dividend taxes. At the end of this year, the tax changes made in 2002 and 2003 will expire, and if Congress does not act, the tax code will revert to what it was prior to those changes, with significantly higher tax rates for dividend income and capital gains. In 2003, the tax code was altered to bring the tax rate on dividend income down to 15 percent, to match the tax rate on capital gains. For high-income investors, the rates on dividends are expected to revert to 40 percent and the rates on capital gains to 20 percent.