Windstream CEO Leading Charge To Halt Dividends Tax Hike

Windstream CEO Jeff Gardner is one of 18 high-profile CEO's leading a campaign to convince the Obama administration to reverse its effort to increase the tax rate on dividends and capital gains.

Gardner, whose Little Rock-based company pays the fourth highest dividend yield among the S&P 500, signed a letter to U.S. Secretary of the Treasury Tim Geithner expressing concerns that the tax hike could hurt job creation, seniors on fixed incomes, and the incremental economic progress seen in the U.S. during the last several months.

The letter reads in part:

Equity capital is the lifeblood of investment and job creation for U.S. companies. We believe the administration’s proposal will limit corporations’ ability to raise new capital and will undermine economic growth.

Dividend-paying stocks offer investors a bright spot in a challenging financial marketplace. The administration’s plan to increase the top tax rate on dividends from 15 percent to 39.6 percent in 2013 will very likely have a seriously disruptive effect on this economic sector, reducing the incentive to pay dividends.

Lower dividend yields and higher taxes on dividends would also hurt economic security for taxpayers at every income level — particularly seniors, who rely heavily on investment income to make ends meet.

The threat of looming tax increases on dividends and capital gains could also increase volatility in the stock market this year. Investment advisers are already cautioning clients to consider potential tax law changes for dividends and capital gains while making investment decisions.

The Obama administration is considering letting the Bush tax cuts expire next year, which would increase the dividend tax and raise the tax rate on capital gains to as high as 43.4%.

Gardner appeared on financial news channel CNBC on Wednesday (see video below) after an earlier stockholders' meeting in Little Rock. He said that if the tax rate increases, Windstream won't diminish its dividend, but it could impact the company&#03

9;s investor base and corporate investments.

“We're finally seeing some modest improvement in the economy, albeit small, and I think something this disruptive has the opportunity to affect not only job creation but investment and that's the last thing we need in this country right now,” Gardner said.

He added that nearly 50% of Windstream shareholders are retail shareholders — not institutional investors — and that those older, retired investors would be penalized by a higher tax rate on dividend income.

Gardner also argued that the dividend tax rate and capital gains tax rate should be linked and be maximized at the same levels.

“We don't want to incent companies to retain money versus issue money to their shareholders and by linking those, I think that's critically important,” he said.

Gardner said his CEO group was angling to meet with White House officials next week and would be pressing the issue in the weeks to come.

“We're hopeful,” said Gardner. “We're going to work this very hard over the next few months.”