Indiana’s history of low-cost and reliable energy has always given our state the upper hand in economic development and job creation. The best way to continue this tradition and build strong local economies is by encouraging business investment throughout Indiana. Unfortunately, bad news lurks around the corner.

The current federal tax rates on investment income – dividends and long-term capital gains – are set to expire at the end of this year. Today, the top tax rates for both are capped at 15 percent. But if Congress and the president don’t act to extend them, the top tax rate on dividends will rise to 39.6 percent.

Boosting tax rates on dividends by as much as 190 percent will cause ripple effects that our local communities and Indiana investors – primarily seniors – will feel.

The sectors that pay dividends – such as utilities, telecom, pharmaceuticals and industrials – do so to make their stocks more attractive to investors. Through their sales, these companies can get capital they need for investment at a lower cost than through issuing bonds or other debt financing.

Raising tax rates on dividends will likely cause investors to seek out other investments that have lower tax rates. This will make dividend-paying stocks less attractive, which could affect stock valuations. This in turn will make it even more difficult and costly for companies to raise capital to expand and grow. More importantly, local communities that depend on these companies and the jobs they provide will take the hit.

Seniors will likely feel the pain of a tax hike on dividends. Although the popular perception may be that only the wealthy receive dividends, seniors in particular invest in dividend stocks because of their steady income. According to a February study prepared by Ernst & Young for the Alliance for Savings and Investment, taxpayers age 50 and older file almost two-thirds of all tax returns with qualified dividend income.

With today’s interest-bearing investments returning almost 0 percent, these older investors have turned to dividends to provide a portion of their retirement income. But the dividend-paying companies, faced with the effects of higher tax rates on dividends, could end up reducing their dividend or reducing the annual growth rate of the dividend. As a result, all investors, but especially seniors, who own dividend-paying stocks could end up getting smaller dividend checks. Lower stock values also would affect every investor who owns dividend-paying stocks indirectly through mutual funds. Anyone with an employer or union pension plan, 401(k), individual retirement account and/or life insurance policies holds dividend-paying stocks. If the top tax rate on dividends sharply increases, the domino effect will hurt everyone by affecting stock valuations.

Companies and shareholders make their investment decisions with an eye toward the long term. They know Congress has acted in recent years to keep the tax rates on dividends low for all investors, so a future tax increase may not be reflected in current stock valuations. This raises the likelihood that financial markets and Indiana’s economy will suffer further if Congress and the president do not act to stop a dividend tax hike.

Concerned investors should contact representatives in Washington and tell them to extend the current rates for everyone for one year and enact comprehensive tax reform next year. A national grassroots campaign can help you do so. Visit the Defend My Dividend website today – www.defendmydividend.org/ausa – to learn more about this vital economic issue and how you can voice your opinion on it.

Raising tax rates this year and then overhauling the entire tax code next year creates too much uncertainty for individuals and businesses, which will further slow the economy.

Extending today’s dividend tax rates for one year for all taxpayers is good for Indiana’s economy, businesses and retirees.