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U.S. Investors Already Dodged $6 Billion In Fiscal Cliff-Related Taxes

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EARLY DIVIDENDS TAX REVENUE
Oracle CEO Larry Ellison backs up the money truck after paying early dividends. Such payments could cost the government billions in tax revenue. | AP

For all of the noise they make about the federal budget deficit, U.S. companies are not exactly doing much to help.

In fact, many of them have been making the problem worse in recent weeks by quickly shoveling cash to investors to take advantage of low tax rates before they rise, potentially costing the government billions of dollars in much-needed tax revenue. All told, companies so far have given shareholders roughly $24.2 billion in special or early dividend payments, potentially saving those shareholders -- and costing the government -- $6 billion or more in taxes, according to data compiled by data tracker Markit and The Huffington Post.

So far, 144 publicly traded U.S. companies have announced special one-time dividends to give cash to shareholders before an expected increase in the dividend tax rate next year, amounting to $21.4 billion, according to Markit.

In addition to those special dividends, several companies have gone ahead and already paid dividends previously scheduled for next year, also to take advantage of lower tax rates. These include giants such as Wal-Mart Stores and Oracle. We don't have a complete tally of these early-payers yet, but at least a dozen companies so far have paid early dividends worth about $2.8 billion, by HuffPost's count.

Oracle CEO Larry Ellison alone stands to get a $200 million payday from his company's early dividend, enough to pay for nearly half of another personal island. Wal-Mart's early dividend could save the Walton family $180 million in taxes next year, the New York Times estimated recently.

As luck would have it, companies where a large percentage of board members also happen to own shares are more likely to be paying these special or early dividends, according to recent Markit studies.

Altogether, the $24.2 billion these early or special dividends designed to keep shareholders a step ahead of the tax man will be taxed at 15 percent, for a total bill of about $3.6 billion. That means the government is potentially missing out on billions of dollars in revenue. If, for example, the tax rate on dividends jumps all the way to 39.6 percent next year, as is currently prescribed by law, then the tax bite on these dividends would be $9.6 billion.

That would mean these early and special dividends are costing the government at least $6 billion. Even if dividend tax rates rise to just 20 percent next year, companies paying dividends this year will cost the government more than $1 billion in tax revenue.

Wealthy investors would have to pay another 3.8 percent on these dividends, according to President Obama's health-care reform law, but let's forget that for now, since we have no way of knowing how much of these dividends are going to the wealthy -- although it's probably quite a lot.

One billion or six billion dollars is obviously not a great deal of money, when you're talking about an annual budget deficit of more than $1 trillion. But every little bit helps. That $6 billion, for example, would cover the budget of the Corporation for Public Broadcasting for the next 13 years. Big Bird forever!

These companies would argue that their primary duty is to protect their shareholders, not Big Bird. And they would be right about that. But we should also remember where their priorities truly lie whenever we hear them ranting about the budget deficit, as they do all of the time, most recently in their "Fix the Debt" campaign.

So far, none of the CEOs involved in "Fix the Debt" have announced special or early dividends, as far as we can tell. But as the HuffPost's Christina Wilkie wrote recently, these same CEOs cost the government in even bigger ways, enjoying massive tax breaks and keeping billions of dollars in profits overseas to avoid having them taxed at home.

Also on The Huffington Post

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