Bush Era Tax Cut Extension: Best News Possible for Dividend Stocks

By: Carla Pasternak

You've no doubt heard the Bush-era tax cuts have been extended.

After much sound and fury, Congress voted to extend the tax breaks to all Americans, including those in the top income brackets. The tax cuts were set to expire at midnight on Dec. 31, but will be extended through the end of 2012.

Lost in the headlines was some of the best news we've heard in a while. The 15% tax cap on qualified dividends and long-term capital gains was extended as well. And a tax rate of 0% on qualified dividends and long-term capital gains will apply for investors in tax brackets below 25% (those making less than $34,000 this year).

The deal puts an end to a debate that, if unresolved, would have seen Americans facing big tax hikes in 2011. It's expected to give a major boost to the economy by providing consumers and businesses with more cash to spend.

Mark Zandi, the chief economist of Moody's, upped his economic growth forecast for 2011 to 4% from 2.7% after the deal was announced. And what's good for the economy can be good for dividend-paying stocks that use their higher profits to ratchet up payouts.

Standard & Poor's estimates investors with taxable accounts will pocket an additional $74.5 billion during the next two years under the extended 15% dividend tax treatment. Over the nearly 10 years that income investors will have enjoyed the reduced dividend tax rate, we'll have raked in an additional $348.4 billion, says Standard & Poor's.

http://seekingalpha.com/article/244070-bush-era-tax-cut-extension-best-news-possible-for-dividend-stocks?source=dashboard_investment-ideas