THE JOBS & GROWTH TAX RELIEF RECONCILIATION ACT

AND THE INCREASE IN DIVIDENDS

JULY 30, 2003

It has long been recognized that the double taxation of corporate dividends introduces many deleterious 

distortions into the economy, including an inefficient bias against corporate finance by equities, and a 

disincentive to pay out dividends to shareholders. The Jobs and Growth Tax Relief Reconciliation Act 

(JGTRRA) addresses these disincentives by greatly lowering the maximum tax rate on dividends and on

capital gains to 15 percent in 2003-2008, and for taxpayers in the 10 percent and 15 percent ordinary 

brackets, the rate falls to 5 percent in 2003-2007 and to 

zero in 2008. By encouraging equity financing, it will 

reduce the risk of corporate bankruptcies. By 

encouraging higher dividends, it will help reduce faulty 

accounting that led firms to overstate earnings. The 

effects of JGTRRA are already being seen, especially in 

the numbers of companies that have increased their 

payouts of dividends.

4 The first chart plots five-year averages of the payout 

ratio (dividends as a percent of earnings) for the 

S&P 500 companies, and vividly illustrates the steep 

drop off in the payout ratio since the mid-1990s—a 

source of concern by many about the declining role of dividends.

4 The second chart depicts the gross new issuance of stock as a percent of 

total market capitalization, and includes a trend line showing that this 

ratio has been falling for the last decade. Although the data in the chart 

stop only a month after the President signed JGTRRA into law, a sharp 

increase in stock issuance can already be seen.

4 But perhaps the clearest evidence of the effects of JGTRRA is the large 

number of companies that have initiated dividend increases since 

May 28. The following tables provide information on these increases. 

Ex-Dividend.com has reported 719 dividend increase announcements so far this year, compared with 

550 announcements at this point last year. In particular, the number of announcements from June 1 

through July 25, 2003 was 74 percent greater than during the same period last year. Companies 

increasing dividends include such well-known names as Target, Procter & Gamble, Walgreen, and Bank 

of America. More than 60 percent of the companies have hiked dividends by more than 10 percent.

4 210 companies have announced a dividend increase since President Bush signed JGTRRA into law on 

May 28, 2003.

4 Moreover, JGTRRA’s influence can also be seen in the 134 companies that were not previously paying 

dividends, but have announced dividends this year. These companies include Microsoft, Viacom, 

Petsmart, and IHOP.

"This [the reduced tax rate on dividends] will encourage more companies to pay

dividends, which, in itself, will not only be good for investors, but will be a corporate 

reform measure. It's hard to pay dividends unless you've actually got cash flow. The 

days when people could say, invest with me because the sky's the limit, will be

changed by dividend policy." – President George W. Bush

56.2

52.5

58.2

53.4

47.6

41.3

46.6 48.2

51.4

35.3 33.7

1950-

1954

1955-

1959

1960-

1964

1965-

1969

1970-

1974

1975-

1979

1980-

1984

1985-

1989

1990-

1994

1995-

1999

2000-

2003QII

S&P 500 PAYOUT RATIO

Percent, Period Averages

Reported earnings before 1988, then

operating. 2003QII estimated by S&P.

90 91 92 93 94 95 96 97 98 99 00 01 02 03

0.00

0.04

0.08

0.12

0.16

0.20

0.24

0.28

0.00

0.04

0.08

0.12

0.16

0.20

0.24

0.28

NEW STOCK ISSUES AS A PERCENT

OF MARKET CAPITALIZATION

Gross, Monthly

Trend Line
2

4 According to Bloomberg (July 27): “Shareholders will pocket $9.2 billion more from Standard & Poor’s 

500 Index companies in the next year, thanks largely to President George W. Bush’s dividend-tax cut. 

Since Bush signed the tax reduction into law in May, 54 members of the S&P 500 have either raised 

quarterly dividends or started making a payout. The average increase has been 28 percent.”

Dividend Announcements Year-To-Date: 2002 vs. 2003

2002 2003 % Change

In early January, President Bush proposed to eliminate the double tax on dividends.

January 114 136 +19.2%

February 97 110 +13.4%

March 64 81 +26.5%

April 95 107 +12.6%

May 61 77 +26.2%

On May 28, the President signed the reduced tax on dividends into law.

June 52 73 +40.3%

Through 

July 25

67 135 +101.4%

TOTAL 550 719 +30.7%

Source: Based on data provided by Ex-Dividend.com

Magnitude of Increase

% Change in 

Dividend

Less than 5% 5% to 10%< 10% to 25%< 25% to 100%< 100% or more

Number of 

companies

(210 total)

38 41 72 48 11

As of July 25, 2003:

210 companies have announced an increase in their 

dividend since the President signed the new tax law

including . . .

Target Corp. Bellsouth Corporation Bowl America

Pier 1 Imports Procter & Gamble Walgreen Co.

Citigroup Inc. Bank of America United Mobile Homes Inc.

Treasury Office of Economic Policy

“It [the new tax law] dramatically reduces the tax on dividends and investment. This 

will have a profoundly positive effect on job creation, corporate accountability, and 

the well being of all Americans.” – Treasury Secretary John Snow