Until 2003, investors paid taxes on dividend distributions at ordinary income
tax rates.8 For most of the past 25 years, individual investors received
preferential tax rates on capital gains that were lower than tax rates on dividend
income. Table 1 reports the dividend and capital gain tax rates from
1980 to 2001. The tax rate on dividends varies between 28% and 70%; the
tax rate on capital gains varies between 20% and 33%.