Many of America's companies, large and small, are proving truth to one of the oldest adages in business: follow the money and see what business is really doing, not what they are saying, about the approaching fiscal cliff in the US that could see a sharp rise in tax on corporate dividends.
The "fiscal cliff" is the situation in America post January 1, 2013, which will see tax cuts end and spending cuts come in automatically, if there's no deal between now and New Year's Eve. The result could be a sharp contraction in government spending, a sharp rise in tax income and a slump in the US economy.
A lot of businesses are getting toey over that prospect. They have started lobbying Washington, especially Republicans still shell shocked from the drubbing the party took in the US elections earlier this month. Business wants the Republicans to abandon their hardline on no tax rises and to push for spending cuts. President Obama is receiving advances to cut spending and be gentle with tax rises (which are going to happen, the argument is over the extent).
But what they are doing to protect their money tells a different story: they are acting as though taxes, especially those on dividends, will rise in 2013, regardless of what happens between now and the end of the year, or in any fudge that pushes a deal out into later next year.
Higher taxes for the rich in the US has generated a lot of controversy, but for corporates and their shareholders it's the number one big deal. Under the current tax rates (the so-called Bush tax cuts), dividends are taxed at 15%. If there's no deal on tax and spending by the end of this year, that rate could rise over 40% next year (the level it was back in 2000).
So to protect their shareholders from paying higher tax on distributions in 2013, more and more companies are either lifting dividends ahead of December 31, bringing payment dates forward from 2013 to late next month, or making special payments, and lifting ordinary dividend payouts as well.
Nowhere was this more obvious than in retail giant Walmart, which is still 48% controlled by the Walton family (the descendants of Sam Walton, who founded the chain). Earlier this month in its latest quarterly profit report, Walmart directors revealed they had brought the dividend payment date forward from January 2 to December 28. Unlike other companies, there's no sign Walmart is proposing a special payment or a higher dividend.
And Sheldon Adelson's Las Vegas Sands casino group has announced a special dividend that will net Adelson $US1.2 billion before the end of 2012
. The special $US2.75 dividend is in addition to a 40% lift in ordinary dividends (to $US1.40 a share a quarter).
According to market information and consulting firm Markit, since early October 103 US companies have revealed plans to pay special dividends or make extra payments to shareholders by the end of this year. It reckons more than 120 other companies will announce higher payments before December 31.
Since the win by Obama, and the gains for the Democrats in the Senate, 66 companies have announced special dividends, against 37 from the start of October to just before the November 6 polls.Other companies doing it include Adelson's Las Vegas rival Wynn Resorts, controlled by Steven Wynn (another loud anti-Obamaist), who will get 10% of a special $US750 million payment according to US market watchers.
Wynn declared the special $US7.50 a share payment and doubled its normal payout to $1 a share, meaning Wynn (like Adelson) gets not only a whack of the one-off payment, but benefits from the higher payment.
Another company citing the dividend tax cut uncertainty is the Jack Daniels maker, Brown-Forman Corp which overnight said it would pay a $US4-a-share special payment on December 27 to shareholders. Bloomberg reckons the Brown family will get around $US230 million in the special payment. What a nice Christmas present.
It looks as though US business reckons low dividend taxes will become history sometime in 2013.