U.S. Global Investors, Inc. (
), a boutique registered investment adviser specializing in natural resources and emerging markets, announced today that the company will pay a one-time special “Santa Claus” dividend to fight the “Fiscal Cliff Grinch.” The special dividend is in addition to the monthly dividends paid in 2012.
“We believe paying a one-time special dividend this year is a timely use of the company’s capital resources,” says Frank Holmes, CEO of U.S. Global Investors. “The ‘Fiscal Cliff’ drama is threatening the wealth of all hardworking savers and investors. Our shareholders benefit substantially by receiving this special dividend in 2012 while the tax rate is a fair and reasonable 15 percent.”
A publicly traded company is limited in the number of ways it is able to use its profits: It can spend earnings on research and development, new equipment, stock buybacks and acquisitions to strengthen its business, or it can share profits via a dividend payment.
When a company chooses to pay a dividend, it pays those dividends after it has paid about 35 percent in income taxes on its taxable income; individuals pay an additional 15 percent on any dividends received, for a total effective tax rate of 45 percent on this stream of income. This is double taxation, as taxes are paid twice on the same source of earned income, unlike corporate bonds where interest paid is a pre-tax expense to the company and only investors pay taxes on the interest income they receive.
If there is no solution to the “Fiscal Cliff” by the end of this year, the dividend tax rate will climb as high as 43.4 percent after factoring in the new tax due to the recently passed Affordable Care Act. In simple terms, dividend income is first taxed at 35 percent and then again at 43.4 percent, for a total of approximately 63 percent effective tax on that stream of income.