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WASHINGTON, Dec. 24 - White House officials are
urging President Bush to
propose cutting taxes on corporate dividends for shareholders by about half,
according to administration officials and Republicans close to the White House.
The proposal, likely to be a crucial part of the
tax-cutting plan Mr. Bush will
announce in January, is intended to stimulate the economy and reduce what many
economists say is an incentive in the current law for companies to avoid paying
dividends and to run up debt. While many economists think it would do little to
bolster the economy quickly, they say the proposal would give a boost to the
Bush's policies have led to a market crash, just like Reagan and his daddy.
Clinton raised taxes on the super rich and the economy sizzled and the Dow
flirted with 12,000 - where is the Dow today, under Bush? Under 8500.
We can't afford to have this Unelected Idiot crash our stock market for
the sole purpose of enriching his contributors.
The 50 percent cut would cost the Treasury more
than $100 billion over 10 years,
and the tax benefits would overwhelmingly flow to the nation's very wealthiest taxpayers.
Mr. Bush is in favor of some kind of reduction in the tax on dividends, a White House
official said, but has not settled on an amount.
President Bush's entire tax package is expected
to provide as much as $300 billion
in reductions over 10 years. It is almost certain to speed up both tax cuts that were
supposed to take effect over the next several years and corporate write-offs for
investment in new equipment. Officials are also considering measures that benefit
middle-or lower-income families, like a more rapid increase in the child-care tax credit.
Yeah, and I'm considering joining the priesthood.
Administration officials contend that reducing
dividend taxes would immediately increase
the underlying value of companies and lower their cost of capital. The short-term political
appeal is its potential effect on the stock market, because it would instantly make shares
of any company that pays dividends more valuable than before.
The long-term benefit of a cut in the dividend
tax, the officials say, would be to greatly
reduce the market distortions of taxing dividends twice - once as corporate profits and
once as dividend income to shareholders - while granting tax deductions on debt interest
payments. For shareholders, dividends are now taxed as ordinary income at rates of up to
38.6 percent. By comparison, the maximum tax rate on capital gains - the profit made from
the increase in value of shares or other kinds of property - is 20 percent.
Many economists are skeptical that a cut in dividend
taxes would provide much immediate
stimulus to the economy, which has been Mr. Bush's most important justification for new
tax cuts. It would be at least a year before shareholders see any extra money, and the
measure would not leave extra money in corporate coffers.
"One wouldn't think of this as the first or second
or even third measure to stimulate
consumption or investment," said Alan Auerbach, an economist at the University of
California at Berkeley who has studied the issue for years.
While the tax on dividends has been a focus of
White House discussions, there have been
many proposals on how such a reduction could be structured. A White House official
cautioned this week that Mr. Bush has not yet decided on exactly how much to reduce
the tax on corporate dividends, but the official said advisers agreed in principle on the
most logical proposal.
As envisioned, a person would be able to exclude
a substantial share of all stock dividends
- probably about half - from taxation. There would be no upper limit on the dollar value of
dividends that would be tax free, which means that most of the relief would flow to the
The Urban-Brooking Tax Policy Center, a research
center here, recently calculated that,
if the government completely eliminated taxes on corporate dividends, 42 percent of the tax
benefits would flow to the wealthiest 1 percent of all taxpayers.
Republicans close to the White House said there
were several reasons why officials were
attracted to the idea of letting taxpayers exclude about half of all dividend income from taxes.
Eliminating all taxes on corporate dividends would
drain so much money from the Treasury
- about $300 billion over 10 years, according to some estimates - that President Bush would
have no room for other tax cuts.
Reducing dividend taxes by about half, to about
20 percent for people in the top tax bracket,
would not only reduce the drain on revenue to the Treasury but also bring dividend taxes in line
with those on capital gains.
Tax analysts said that would eliminate one imbalance
in the current tax system that favors
fast-growing companies like Microsoft that pay no dividends but attract investors with the
prospect of big increases in their stock prices.
Administration officials have looked at ways to
reduce dividend taxes that would primarily
benefit small investors, but White House advisers say those would do little to correct
distortions in the current system.
One option would be to eliminate taxes on the
first $1,000 or $3,000 in dividend income.
But White House officials think that approach would do little to reduce the distortions in the
system because it would not change incentives for the big investors who actually reap most dividends.
Many outside economists agree. "There is a fundamental
tension between the distributional
effects of these measures and the incentive effect you are trying to achieve," said James Poterba,
a professor of economics and public finance at the Massachusetts Institute of Technology.
That the tax cuts themselves would flow overwhelmingly
to the nation's wealthiest taxpayers
is a fact that Democrats are sure to cite as evidence that the administration wants to cut taxes
only for the rich.
The Democrats are sure to do nothing besides cower in fear like children - and obey Mr. Rove.
Democratic lawmakers are pushing for tax measures
that would benefit lower-and middle-income
households, like a temporary "holiday" from Social Security taxes or a temporary exemption for
the first several thousand dollars in taxable income.
Robert S. McIntyre, director of Citizens for Tax
Justice, a research group backed by labor unions,
said the entire complaint about "double taxation" was dubious because corporations make such
heavy use of legal tax shelters and loopholes.
Although the top corporate tax rate is 35 percent,
the average tax rate is only about 15 percent,
Mr. McIntyre has estimated on the basis of analyzing corporate tax data.
"Don't worry about the double tax," Mr. McIntyre said. "Worry about the half tax."
But business groups have themselves often been
lukewarm about cutting dividend taxes as well,
pushing harder for more direct benefits like faster write-offs on new equipment or reductions in
overall corporate tax rates.
This year, business lobbyists say they support
a cut in the dividend taxes - but not at the expense
of other measures that would cut business taxes more directly.
If President Bush has his way, the dividend tax
cut will be a permanent change to the tax code.
The only reason Mr. Bush may settle for less is that the Senate's complex rules on filibustering
make it easier to pass a tax measure that has time limits.
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