SURVEY SAYS: How About That Dividend Tax Exemption?

The Bush Administration says it could boost stock prices 10%, something our retirement savings could surely stand – but critics wonder if we can, or should, afford it.  This week we asked readers to weigh in on the proposed tax exemption for dividends – and boy, did we get an earful! 

The vast majority of our readers supported the notion – a full 37.5% said it was “long overdue”, while more than 25% said it was “the right thing to do.”   One reader noted, “I’m a Democrat but I have to go with d) – a good thing to do.   The economy needs any stimulus it can get and this move should bring more dollars into the stock market and hence help to begin a recovery.    I ‘m not concerned about a deficit – heck it’s the American way for families and businesses.   We all have deficits such as mortgages, loans, credit lines, etc, so why should our government be different.   As long as the deficit is not extreme, let’s not get overly concerned.”

Another cautioned, “More precisely, it is one right thing to do, not the right thing to do.   If you are looking for something that will move the market immediately (and that is surely a priority), then the removal of the dividend tax is a very good choice.   A more subtle effect will be to move attitudes toward investing for the long term versus trying to make quick profits by rapid trading.   These are good things – for the market, the economy and for investors.”

A number of readers noted that those two items (overdue and the right thing to do) were not mutually exclusive – and chose both.

Too Little, Too “Much?”

About 16% said it was too much to the wrong people.   A reader cautioned, “Anyone who can afford enough stock to live off the dividends is not really the portion of the public that needs additional retirement income.   With that said- I personally would LOVE not to be taxed on my dividends :).”

Just short of 14% said the exemption wasn’t enough to make a difference, like the reader who said “Any money received will be used for “survival” purposes such as increased health care and prescription costs as well as rising gas prices.   The only answer to stimulate the economy is to increase jobs.   It’s only a band-aid, not a solution.”   Another said, “Something needs to be done but this isn’t it.”  

Another opined, “Based on my own “ho-hum” reaction, I’ll vote “b”.   The change in the law isn’t going to send me charging out to buy more stocks or different stocks (those that pay more dividends).   In Bush’s defense, he’s trying to do something.   It just seems to me like the change isn’t enough to change behavior.   Maybe I’m not rich enough to be enthusiastic about the proposal.”

And a number of readers also noted that the “too little” and “too much” options were (also) not mutually exclusive – and chose both.

Roughly 4% of this week’s respondents were honest enough to admit they “didn’t have a clue” about the potential impact of the proposal, including the following comment, ” I (e) haven’t got a clue.”   No one really does.   This is new.   Anytime anything new is explained it has to be analyzed and commented on TO DEATH before anyone even knows how it will all pan out.   Anyone in the HR industry knows this – if they don’t, then I suggest that they replace a fund in their 401(k) and see what the participants say.   It will have the same effect as President Bush’s proposal:   it will simultaneously elicit commentary of anger, confusion, pleasant surprise and fear of doom.   Some will even admit that they don’t care.   We will just have to wait and see how the evolution of the program plays out.

And there was the 2% that could only be accommodated by an “other” category, including “You did forget the all important category of “just really don’t care”.

But this week’s Editor’s Choice was short and sweet (and perhaps a typo, but we like it the way it came to us), “Double taxation is not a good think.”

Thanks to everyone who participated in our survey!

Based on my own "ho-hum" reaction, I'll vote "b".   The change in the law isn't going to send me charging out to buy more stocks or different stocks (those that pay more dividends).

In Bush's defense, he's trying to do something.   It just seems to me like the change isn't enough to change behaviour.   Maybe I'm not rich enough to be enthusiastic about the proposal.

Sigh

Any money received will be used for "survival" purposes such as increased health care and prescription costs as well as rising gas prices.   The only answer to stimulate the economy is to increase jobs.   It's only a band-aid, not a solution.

Ending the double taxation (any double taxation) of dividends is way, long overdue.

The George W. "Let's shift the tax burden from MY rich friends to YOUR grandchildren" stock dividend proposal? Who could possibly be opposed?

I guess I vote (d).    It doesn't seem right that dividends are taxed twice.   But I don't know if the company or the shareholder should get the break.   If the company got the break, maybe they would have more reason to give dividends to shareholders....which could have some pluses and minuses.  Check out the below story about tax breaks always going to the rich.  Best explanation given yet........

I was having lunch with one of my favorite clients last week and the conversation turned to the government's recent round of tax cuts.  "I'm opposed to those tax cuts," the retired college instructor declared, "because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and me and that's not fair."  

"But the rich pay more in the first place," I argued, "so it stands to reason that they'd get more money back." I could tell that my friend was unimpressed by this meager argument.

Even college instructors are a prisoner of the myth that the "rich" somehow get a free ride in America. Nothing could be further from the truth.  Let's put tax cuts in terms everyone can understand.

Suppose that every day 10 men go to a restaurant for dinner. The bill for all ten comes to $100. If it was paid the way we pay our taxes, the first four men would pay nothing; the fifth would pay $1; the sixth would pay $3; the seventh $7; the eighth $12; the ninth $18. The tenth man (the richest)

would pay $59.

The 10 men ate dinner in the restaurant every day and seemed quite happy with the arrangement until the owner threw them a curve. "Since you are all such good customers," he said," I'm going to reduce the cost of your daily meal by $20. Now dinner for the 10 only costs $80." The first four are unaffected. They still eat for free. Can you figure out how to divvy up the $20 savings among the remaining six so that everyone gets his fair share?

The men realize that $20 divided by 6 is $3.33, but if they subtract that from everybody's share, then the fifth man and the sixth man would end up being paid to eat their meal.

The restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so now the fifth man paid nothing, the sixth pitched   in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of $59.

Outside the restaurant, the men began to compare their savings. "I only got a dollar out the $20," complained the sixth man, pointing to the tenth, "and he got $7!" "Yeah, that's right," exclaimed the fifth man.

"I only saved a dollar, too. It's unfair that he got seven times more than me!" "That's true," shouted the seventh man. "Why should he get $7 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor." The nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They were $52 short!

And that, boys, girls and college instructors, is how America's tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table any more. There are lots of good restaurants in Switzerland and the Caribbean!

(Author not named)

Besides that - The rich guy owned the company where they all worked. After the beating, he decided to retire and close the business. They all lost their jobs and never went to dinner together again. They didn't make enough on welfare to go out to dinner at all. (f) other.   In general I think it would make most sense to eliminate dividend taxes at the corporate level, as the benefit of deducting interest payments has led companies to borrow more than they should.   It would also lower the cost of capital, and so should increase profits, spur investment, etc.

On the individual side, I guess I could make a case for lowering the rate on dividends to the logn-term capital gain rate to counter the tendency of companies to return money to shareholders through stock buy backs.

Based on my own "ho-hum" reaction, I'll vote "b".   The change in the law isn't going to send me charging out to buy more stocks or different stocks (those that pay more dividends).

In Bush's defense, he's trying to do something.   It just seems to me like the change isn't enough to change behaviour.   Maybe I'm not rich enough to be enthusiastic about the proposal.

The elimination of the tax on dividends is absolutely a step in the right direction.   It is the right thing to do and is long overdue.   It is not enough of a tax break to the right people.   Anything that allows us to keep more of what we earn is the right thing to do.  

A and D.   This is the first President since Reagan that "gets it" when it comes to the economy.   The only way to stimulate demand over the long run is to cut taxes and make them permanent.   Hopefully the 2001 tax plan will be made permanent.

D) the right thing to do.   Ultimately, this will benefit not only the rich, but also the millions of others who have equity positions through mutual funds and 401(k) plans as companies actually pay out money to investors rather than use it to merely drive up the price of their stock.  

Clearly A. Double taxation is not a good think.

Long overdue, (A) and the right thing to do (D).   It's my stock - I took the risk when I bought it and the government did not. They should not share in the dividends.

Well, I think it's long overdue, it's too little to make a difference, and who it goes to is irrelevant because it's the right thing to do......

It's both (a) and (d), and while there will be changes at the margin in the pricing of all capital assets as a result of this, causing relative "winners" and "losers", the overall capital markets will become much more efficient without the double taxation of a significant piece of the cost of capital.

(e) have not got a clue. Need to read more about it and to early to tell.

I choose (a) and (d); however, I would like to see interest exempted as well.

My response falls somewhere between (b) and (c).   This is just another futile attempt by the President to gain the support of the Senior citizens since he was unable to make good on the campaign promise of fixing the Social Security program.   Instead, he should try to concentrate on the people who actual drive the stability of our economy...the middle and low income classes which make up about 75-80% of the population.   He not only owes it to them, but he should be grateful that these classes have been willing to spend their hard earned money during a recession to help keep the economy from going into a depression.   Give tax favors to the Elderly who pretty much keep the drug industry afloat would be going in the wrong direction.  

I was floored when I saw an interview on NBC of a retiree who claimed that he would benefit from this and it would allow him to fly from his home in MA to his condominium in Florida more frequently and will enable him to live a more comfortable lifestyle by eating out.

  ***sigh***   It doesn't sound like he needed the break to begin with.   I just hope something

is done before George W. brings back Reaganomics and further drives our economy into a deeper recession.

Make it retroactive to 1/1/03 - don't wait until next year.   While he's at it, he should drastically reduce the tax % on capital gains!   Retirees and those close to retirement will benefit. So what if the wealthy benefit too?   It's about time someone in Washington let us keep more of our hard earned money.  

I remember when that tax was instituted. I believed it to be an unfair tax at that time and I still do. The tax is double taxation and is inappropriate.   Repealing it simply rights a long standing wrong.  

As to money going to the "wrong" people, I have never understood why people don't realize that if the "rich" have money to spend, they boost the economy for the rest of us.   They travel, they purchase, they remodel and, if they are in a position to do so, they expand their businesses or they reinvest - all supporting the economy for the rest of us.   It's not a hard concept but

seems to be hard to grasp for a lot of lawmakers.

I saw a news piece on one of the morning shows where they were talking to service and entertainment industry representatives in NYC about this most recent downturn.   They interviewed doormen who are making less in tips, restaurants that aren't as full,   servers getting less tips,   caterers with less jobs and on and on.  

I know nothing as simple as it seems yet it seems to me that if we make it easier for the rich to have money, they will spend it which benefits us all.

I vote for choice a) long overdue. As a life long Democrat, I really resent the way they are calling this a break for the rich and making a class issue out of an idea that really should be embraced by both parties as a way to remove a tax that is both unfair (double taxation issue) and unwise (because it makes corporations tend to look for other things to do with their money rather than return it as dividends, and many of the ideas they come up with are ill-considered).

Long overdue.   The "reward" for saving and investing (apart from 401k's) is increased taxation.    And we wonder why people don't save and invest?

Unfortunately, it is harder to predict the impact the loss of revenue will have on the deficit, the ability to fund or shore up programs such as Social Security and Medicare - or to fund a war.

(d) the right thing to do.-- More precisely, it is one right thing to do, not the right thing to do.   If you are looking for something that will move the market immediately (and that is surely a priority), then the removal of the dividend tax is a very good choice.   A more subtle effect will be to move attitudes toward investing for the long term versus trying to make quick profits by rapid trading.   These are good things - for the market, the economy and for investors.

In my opinion, elimination of the tax on dividends would do more for the economy than any other factor in the President's proposals (and I agree with all of them).   I believe it would spur a lot of corporations that have billions of dollars in cash and have never paid dividends (Microsoft comes to mind), into paying dividends and putting a lot of that money into the economy.   Even if dividends were still resisted, I believe the stockholders would be a lot more demanding.   Now, it is better to make the money with the increasing value of the stock (capital gains tax rate) than to receive dividends that are taxed at the same rate as normal income.   I believe it would also help to decrease the wild fluctuations in the stock markets, people would hold stocks for income rather than having to sell in order to obtain income.

a) long overdue but it would make more sense to have it as a deduction for business income.   That would encourage companies to pay dividends.

(b)    Too little to make a difference.   How many companies besides Microsoft don't pay dividends?

(c)    Too much to the wrong people.   He's just accelerating income tax cuts for his family and friends.   The people barely making ends meet and already hit by increased state and local taxes get nothing or too little to matter. The only dividends they might get are in 401k's which are already sheltered.

(d)    Something needs to be done but this isn't it.

(e)    They are not clueless they are opportunists effectively using any excuse that comes along to increase wealth for the wealthy and justify war.

AND, once again single women get next to nothing.   My quick estimate shows my potential tax cut not even offsetting the increase in sales taxes here (now 7%).

Also, there are probably a lot of CPA's celebrating, no federal tax on dividends is probably going to complicate state tax filings.   The state of NC which is desperate for money is already upset over this since NC takes federal income and modifies it for state taxable income.   I will not be

surprised to see them add a new regulation which will add back in dividend income even if it is in a 401k.

I vote c.   The exception on dividends will mainly benefit the wealthy.   Of even more concern is the fact that the entire plan will put us into deficit spending again.   I understand the need to spark the economy but there also needs to be a plan to reduce government spending and balance the budget.

A) People want it both ways. They lament the lack of dividend paying stocks and declare the stock market over valued when smart corporate managers cut dividends because there are better uses for stock holder capital, AND they bemoan cutting the double taxation because it would benefit the rich even though it would spur those same managers to start paying more in dividends

-- which every credible market study demonstrates is a major long term contributor of stock market returns. With 55% of Americans holding some investment, via their 401k or otherwise, a huge chunk of the population stands to gain.

You did forget the all important category of "just really don't care".

(C)    too much to the wrong people, and also make the comment that I have not heard one person ask him how he is going to pay for a $675 billion plan ,   a war, and a $300 billion deficit!   I don't think he's qualified to run a company, let alone the country. . . .

Would be better to let corporations deduct the dividends paid like they deduct interest payments.   Then the corporations aren't paying tax on the earnings used for the dividends as well as the people receiving them also paying tax.

Again, this tax savings is directed at the wrong people. President Bush would save $17,000 in taxes on his dividend income of $43,805 & and additional $27,500 on his income of $711,453. Vice President Cheney would save $107,000 in taxes on his dividend income of $278,103   & $220,000 in taxes on his income of $4.3 million.   Boy is this directed to the wrong people.

Dividend tax exemption is LONG overdue.   Double taxation should be abolished anyway!   Corporate level, then individual.   I don't care who gets the benefit.   It isn't on whether the rich or poor get the reduction, but the principal of the issue of double taxation.   Why can't people see the issue rather than talk with their individual "pockets" or "opinions"?   Double taxation on dividends is just plain wrong!!

Thanks for the outlet to vent my frustrations against the economic industry and dumb democrats that want to claims Bush is all wrong.   Why does everything have to end up as an economic benefit to someone rather than just being made right, in the first place?   I just think the democrats are running scared that at 2004 election this issue may be played back into their faces at the election booths of WHY they didn't pass it first?   Remember, they "played" with this type issue during "BJ" Clinton's administration, but couldn't quite get it together!    Go for it Bush!!

c too much to the wrong people.   A more reasonable approach would be to exempt a certain dollar amount of dividend income, say up to $10,000 a year or so.   With it being unlimited, it makes it too wide open for abuse by those most able to abuse it!

I am biased on this issue...so I am stating that up front!   I vote for (D): The right thing to do!!!

I am one of those who is living on some of those dividends (to supplement my income)...so, selfishly, I would like to see this tax end.

However,   I also feel it is the right thing to do for business....as negating this tax will allow more investors to buy more stock!   This has both a trickle up and trickle down advantage:

1. Trickle up provides more cash flow to business as more stock is purchased;

2. Trickle down allows more people to buy stock & increase their future income.

3. Pumps more money from assorted sources back into the economy!

I think it's a win/win/win situation.

Thanks for asking!!

ANSWER: (d) the right thing to do! If you think of shareholder's as owners then they own the profits of the business.   When the profits are generated a corporate income tax is due.   Then if the profits are distributed a personal income tax is due.   This seems unfair to me.

Example:

Corporate Profit $1,000,000

Corporate Tax (Federal & State)       400,000

After Tax Profit $    600,000

Dividend Payout $    600,000

Personal Tax (28%)       168,000

Massachusetts State Tax (12%)              72,000

Actual Cash Return $   360,000

How about doing away with the Income Tax and going to a Consumption Tax?

I think it is the right thing to do - double taxation does not make sense.   Also, this may present additional administrative challenges to qualified retirement plans (i.e. the need to account for these dividends differently for tax reporting).

It is long overdue. Corporate spending and investment is the area that badly needs a shot in the arm. Consumers spending and interest related refinancing has supported this economy for too long.   The corporate and private business sector is where the jobs get created.

(d) the right thing to do  

I think that it would be very beneficial to people who want to save, beneficial to companies capitalization, and a very big boost to seniors who need the income now.   I do not see it as a bonus only to the rich.  

(a)      long overdue...Time to eliminate the double taxation of dividends

LONG OVERDUE!!! Taxing dividends has always been an irrational thing.

With all the talk about tax relief for dividends, we've forgotten about the disastrous impact of lower interest rates on savings accounts and other fixed income investments.   There are a lot of senior citizens and others who rely on these investments and do not invest in the stock market.   Why not an exemption for the first $500 in interest earnings?   Without some kind of equivalent relief for small savers, it's not going to the "right" people. In any event, having lived through the guns and butter fiscal follies of the Johnson Administration, we can afford to either do tax cuts or fight a

war--not both.

(c) Wouldn't a tax deduction for corporations for paying dividends be more equitable?   This would eliminate the "double tax," provide more funds for economic stimulus and not favor the "rich" shareholder

My answer is B.   My basic thought is that the full effect of the proposal depends on a lot

of factors.   Dividend yields on the S&P 500 are close to their historical low, so I find it somewhat ironic that anyone would get excited about the proposal.   It obviously won't do much for technology stocks.

Some unknown factors:

Will companies change dividend policies?     Probably some will, but I don't know whether that's good or bad for the economy.   If the increased dividends are spent on consumer goods, that should stimulate the economy. If the extra dividends are kept in 401(k) accounts, there will be little effect.

Will this provide incentives for plan participants to move equities out of 401(k) plans to take advantage of the tax break?   This might occur, but that would seem to be contrary to the need to save for retirement.

What else will change?   I predict some scam artists will sell high yield stocks to unsuspecting seniors, without pointing out that there's extra risk involved.

I'll go for a solid (a) and say way, way long overdue & (d) absolutely the right thing to do even if it hurts the current situation.  

There is the argument that most dividends are in deferred plans and will not help the current economy, that by the way is recovering just fine.   But why should current help vs. deferred help or helping the bloody rich get in the way of doing the right thing?  

The bigger benefit will be what it does for public companies reporting of income.   For investors too lazy or not savvy enough to understand cash flow vs. earnings this tax change will force better fiscal management in many companies.   More investors will now demand dividends and if the cash isn't really there, guess what!

A very large percentage of decidedly un-rich seniors hold stocks and stock funds outside of IRA's & 401(k)'s and get clipped with taxable dividends.   This is wrong.   Our tax system should reward people who wish to deprive themselves of instant gratification for 40 years while working so they can put aside a small percentage of their current earnings to live a more comfortable retirement.   A great way to do that is to have some of those earnings that fall to them be tax free.   After all those same dollars have already been taxed on the corporate side.   The government only loses what they never should have considered taking.   If that helps the so-called rich who the hell cares.    

Why don't all the non-rich just look at what the rich do and copy a much as they can?   They might just become part of the evil class themselves one day.   After all most of the rich got there by working hard, working smart, investing in the future by sacrificing some immediate joy, only to discover that compounding makes future rewards larger than they once thought possible.   And by the way thank you top 1% "rich" for shouldering 28% of the tax burden with out complaint, I hope to join you some day.   Also, a congratulations to the top 50% "rich" for taking a full 96% of the tax burden, I am with you.   I hope one day a legislator decides it's fair to give a tax cut equal in proportion to who pays.   A very unsocialist concept, but which socialist country has succeeded in the long term?     

I'm a Democrat but I have to go with d) - a good thing to do.   The economy needs any stimulus it can get and this move should bring more dollars into the stock market and hence help to begin a recovery.    I 'm not concerned about a deficit - heck it's the American way for families and businesses.   We all have deficits such as mortgages, loans, credit lines, etc, so why should our government be different.   As long as the deficit is not extreme, let's not get overly concerned.

My thoughts regarding the proposed exemption from income tax on dividends :

Pros:

eliminates double taxation of corporate income which is in itself absurd

Cons:

• This will make it harder for small business to compete with their corporate brethren.   
• This will create an additional level of absurdity to the code: dividends will be free of tax, but bank interest and other similar income (such as rents) will be fully taxed
• This will mean that a money market mutual fund that disburses "dividends" will be treated more favorably than a plain old bank money market under the code.   This will not be favorable to traditional banks that didn't branch out into the mutual fund business (which doesn't seem right). This is questionable from a public policy perspective. Money market funds are not FDIC insured and investors are more likely to lose money by investing in them. Banks also are subject to the Community Reinvestment Act whereas mutual funds are not.
• Junk bond mutual funds may see a resurgence when the tax penalty for holding them in a taxable account will be gone.   My guess is that when this law is passed, advisors will push these funds as high income tax avoidance schemes while not disclosing the default risks adequately. A new era of junk bond financing may result in an era of corporate debt debauchery on a scale that will make the recent Enron and Worldcom scandals look tame by comparison.  
• This change may also allow huge new tax loopholes.   Smart (and most likely rich) investors will probably have their advisors figure out ways to recharacterize their income as "dividends", thereby exempting nearly all their income from tax, while the average person will still face nearly the same tax burden.    One way to address this loophole from being unduly abused is to keep include dividends as taxable under the alternative minimum tax similar to the way private activity bond interest (from municipal bonds) is treated currently.   Another possibility that would reduce if not eliminate the potential for abuse is to lower the tax on dividends to the same as long term capital gains instead of eliminating tax on dividends entirely.  

What holds back those from investing in dividend producing vehicles is education on what this investment can do for people, and ways in which they can and should use it to supplement their wages.   Eliminating the taxes on dividends ( I also believe that Bank interest should be included) would allow individuals to keep more of their investment income, and provide a stronger incentive for them to invest.   It is true that the higher income earners will benefit more, but it will ultimately benefit everyone how invests.

c- Too much for the wrong people.   Anyone who can afford enough stock to live off the dividends is not really the portion of the public that needs additional retirement income.   With that said- I personally would LOVE not to be taxed on my dividends 🙂

I think it will encourage investment among those who have disposable income to invest outside of tax-qualified plans-the well-off, not middle class families. I would have preferred to see a tax reduction rather than elimination.   I doubt that it will have a big impact.

I "(e) haven't got a clue."   No one really does.   This is new.   Anytime anything new is explained it has to be analyzed and commented on TO DEATH before anyone even knows how it will all pan out.   Anyone in the HR industry knows this - if they don't, then I suggest that they replace a fund in their 401(k) and see what the participants say.   It will have the same effect as President Bush's proposal:   it will simultaneously elicit commentary of anger, confusion, pleasant surprise and fear of doom.   Some will even admit that they don't care.   We will just have to wait and see how the evolution of the program plays out.

D) The right thing to do.   and (of course) with a comment.   I've always considered taxation of dividends a double hit.   Regardless of the impact on the economy, it's just the right thing to do.   That being said, it will put municipal bonds on the same playing field with utility companies competing for capital.   That could end up costing Property Taxes.

it is long overdue to rid us of this blatant form of double taxation.

Dividends are a return of capital during inflationary times and an after tax distribution at any time.   To those that decry eliminating the tax on dividends, I ask "And how much tax did you pay on dividends last year?"   They inevitably reply, "None".   To which the obvious retort is that with the Bush proposal we will again be equal.   Taxation without representation, eh? Nirvana!   We could do with a little less representation!   

The answer is (b) and (c)--the short term effect would be minimal because the vast majority of those who would benefit, (wealthy), would not change either their consumption or investment patterns.   This is another in a long line of failed economic strategies.   If the administration wants to boost the economy their foreign policy, not economic policy needs revision.

It is long overdue.   As an individual investor, as it now stands I take the all the risk and the government gets to tax the dividends twice.   It just isn't fair.

It is (a) long overdue and (d) the right thing to do. This taxation method was an issue of double taxation, first the corporation issuing the dividend paid taxes on it's net income before taxes and then the individual dividend stockholder pays taxes on their receipt of this dividend. It's not like interest income where the company or financial institution paying the interest is paying taxes on this interest distribution, rather this is expense deduction for them before net taxable income is recognized.

Also, whatever economic effect this would have on the fixed income recipients and the economy can only be positive. Those in the lower tax brackets are clearly the larger recipients of this tax break proposal, far larger than the upper one percent of the top earners. and although

this may be virtually immaterial to the upper one percent taxpayers the numbers indicate that those of the lower tax brackets are more likely to positively impact the economy.

As far as the deferred pension plans realizing any gain here, that was never the anticipation of growth to their respective plans, but rather only part of their expected growth and as far as the taxable portion of their plan exists it is all taxable anyway upon withdrawal.   Maybe, some consideration needs to be made for that portion of their growth that is dividend income?

Just a thought!

Bush's tax plan is the right thing to do.   Dividends have been subject to double taxation for too long.   If the corporate chieftains at Enron and Worldcom had been forced to consider dividends as an alternative use of funds, and as a market measure, they would have had to invest their capital to produce real income and real cash flow.   If a company does not have investment opportunities which provide a sufficient return, it should be able to dividend capital to the owners who can reinvest it as they choose, without suffering double taxation.

(d) the right thing to do.   The double taxation of corporations and dividends to shareholders is unfair.   It will have many other reverberations in public and private companies.   Companies that are holding large amounts of cash (Microsoft $40+) could pay out a huge one time dividend which would probably be reinvested into other stocks, bonds, etc.   Also, privately held companies could do the same thing with owners that had been waiting for stepped up basis at death to avoid taxes.   If there is no limit what would prevent someone like Sam Johnson (S.C. Johnson) from paying himself a $5 billion dividend?   I think these would be good results and reduce a lot of the gyrations that corporations and shareholders go through to minimize the oppressive nature of the double taxation.

(2) too much to the wrong people.   This tax saving proposal only helps the rich getting richer.

Of the options provided, I would have to go with 'c) Too much to the wrong people'.   This tax cut is obviously to benefit the wealthy few.   What makes this tax cut more irresponsible, however, is the lack of accountabily to the future and the elimination of common sense.   If you, personally, are spending more money than you have coming in, would you voluntarily take a pay cut?   Of course not - you would work to lower your expenses that may be unnecessary.   Perhaps I do not follow the logic because I am an accountant - it just doesn't "add up" to me.

I don't believe it will help those that really need the help.   This is due to the fact that those who are barely scraping by don't generally invest, and therefore wouldn't be receiving dividends to get tax breaks on.   In the end the outcome is the gap between the upper class and the lower class increases.  

This is a twofold issue though, as the disparity between the classes increases so too, may the crime rate increase as those that don't have find ways to get some of what those who do have, have!

As a MBA student, I became convinced that most enterprises would be better off plowing spare cash back into research and development, rather than paying dividends.   However, if they believe their shareholders need the incentive of dividends, then I feel they should not be taxed.   Instead, the government needs to formulate a more rational method of taxation, if it really needs the revenue.

The answer is A.

P.S.   Enthusiasm for moral reasons - Taxation needn't be burdensome.

And not completely off the subject...The burden should be shared by equally by all.   Why not a flat tax rate (applied once) to income earned by individuals with little or no deductions?

Bush's tax proposal : (c) too much to the wrong people

My answer to your survey question would be letter (C) too much to the wrong people.

I know President Bush no doubt firmly believes he is doing the right thing by proposing dividend distribution tax cuts with the notion many senior citizens will benefit from the cut; however, I have a difficult time buying the argument.   I know of very few senior citizens who are concerned about the amount of taxes they are paying on dividend distributions they receive throughout the year.   Most of the seniors I know worry more about the pittance they receive from Social Security, and whether or not the Social Security System will be able to survive in the future.   Their worries over Social Security are compounded by the rising costs of health care and prescription drug coverage, and the decreasing level of Medicare payments...not taxation of dividend distributions!

Additionally, President Bush's proposal begs the question as to how a dividend distribution tax cut will effect the well-being of the working poor who make so little they cannot afford to even pay into the Social Security System?   These folks are not investing in the markets.   They are lucky if they have a few dollars in savings or checking accounts from one week to the next!   Moreover, the United States has an appalling number of children living in poverty or near poverty conditions.   How will President Bush's proposals help them?   We would all do well to remember the fact the children of today represent the future of this nation.   Many of the people we hold in prisons across the country fare better economically than the majority of our poverty stricken children do!

The tax cuts President Bush is proposing do not surprise me when one considers who has the President's ear.   He is surrounded and advised by individuals who are among the "elite" and "wealthiest" citizens in the country.   Bush's recent proposal smells a lot like the economically disastrous trickle down economic principles implemented by President Reagan's cabinet/government in the 1980's.   We all know who the beneficiaries were then, and it should not surprise anyone who the beneficiaries will be now should President Bush's proposals be approved by Congress.   The idea the wealthy will share their windfalls by spurring economic growth through investment and business development is the critical flaw in trickle down economics.   The wealthiest individuals and families became wealthy by amassing their great fortunes, not by sharing their fortunes with others.

I believe our founding fathers would be greatly disappointed in the nation we have become if they were alive to see the nation today. We broke our ties and allegiances with the British Crown over 225 years ago because of taxation without representation, and the fact the monarchical government of the time exercised and abused the absolute power they had over all people within the realm of the crown.   After the Revolutionary War, our founding fathers established a nation whose roots were firmly embedded in the principles of democracy.   Heretofore, royalty and monarchical reign were the bane of our existence.   Yet, how much we digress.   Now, instead of the people choosing who our political candidates for public office will be, we are told who they will be!   We then have the honor of making a selection from among those people we have been given to choose from.   This is not democracy!   Moreover, royalty has made a return in the form of the wealthy business owner and corporations who have far greater access to those we have elected to our highest political offices than most of us will ever know or realize for ourselves.

C'est la vie!   The rich get richer and the poor remain ever poorer.   You may or may not be surprised to know I am a staunch Republican with regard to most issues; however, I cannot buy into the economic "stimulus" strategy President Bush is espousing now.   I am also the great (times 7) grandson of a Revolutionary War soldier who fought valiantly with others to assure our way of life, which is another reason our present condition pains me so!   My grandfather, General Phillip Benner, became a very wealthy person after the war, establishing the first settlement and the first iron furnace business in Central Pennsylvania in the late 1700's.   He was also responsible for opening the trade route between Philadelphia and Pittsburgh, and was one of the founders of the town of Bellefonte, PA, the location of the county seat.   Bellefonte has also been the home and birthplace of seven governors.   (Ironically, Bellefonte, PA is also the home of the founder of the 401(k) movement/plan!)   My grandfather paid for and built many grand buildings in the town of Bellefonte, many of which remain to this day.   Yet, regardless of the fact my grandfather was a wealthy person, he knew enough to share his wealth with his community and everyone who worked for him.   Very few (if any) affiliated with my grandfather were in need of anything.   That is the difference between the wealthy of the past, and the wealthy of the present.   In the past, many wealthy persons felt a sense of responsibility to the people in their communities, and took great pains and measures to ensure these people were not forgotten.   When was the last time we heard such things about their wealthy contemporaries?

Getting back to the point, the economic strategy proposed by President Bush is critically flawed, and many of us will pay the price for such follies well into the future: none more so than the working poor and poverty stricken children and families many of us choose to ignore.   Seemingly, we only remember lessons learned from the past after we have made similar mistakes in the present.   Congress would do well to study the history of this nation more so than they appear to have done at this point in time.   We need to do much more for those who require immediate and future assistance now instead of living for the moment and for ourselves.

Thanks for listening to my diatribe!

It would seem that a better way would be to eliminate the double taxation of dividends on the corporate side.   What would be the benefit of a company paying dividends when they could invest in CapEx and deduct the cost as a business expense?   Higher stock price?   If they were concerned about that, they would buy back stock while it is low. This proposal only makes the tax system more complex as we tax some income and not other.

Survey Says…D - The Right Thing To Do. (Every little bit helps.)

The Founding Fathers would FLIP if they could see the amount of taxation the people of their nation currently experience (even though internationally we sadly compare rather favorably). I'm pretty sure they didn't mean for the government to get more than 30% of my regular paycheck and over 40% of any bonus when the first tax was (if I recall correctly) .5%.

By the way, the liberal media (at least in a couple of newspapers) accidentally provided some definition to a couple of the terms bandied about regarding the current packages - which only benefit the "rich" and "super-rich":

"Rich" apparently means a married couple making a COMBINED income over $60,000 annually.

You are "Super-Rich" if you and your spouse together make over $75,000 per year.

If I had known that, I would have hired a butler a long time ago. "Please pour me some champagne, Jeeves, and pass the caviar. I'm rich, you know…"

Survey:

Probably "B"....too little to make a difference.   It will take a long time to see the effects of this, and they will probably be gradual in nature.   We probably won't even notice!

That's also a lot of revenue lost for a government!

In short, I would say "A."   The double taxation of dividends is just plain wrong, as Newt G pointed out on Fox News last night, so eliminating this tax is a good thing.   However, I would have rather seen an elimination of the capital gains tax, which would help ME out much more than the dividend tax.   We only own one stock that generates significant dividends (bank shares Julia inherited from her great grandfather), so we would receive SOME relief from this elimination, but not much.

As for whether or not it's favoring the wrong people, I think that folks who actually pay taxes should get a break.   And since the corporation has already paid taxes on that money, why on earth are we taxing it again?

That's my $.02 worth.

I think the dividend tax cut would be similar to not taxing savings accounts - it only benefits the people who have the most.   Child care and health insurance are big expenses for most middle of the road people.   Help in that area would increase their income by allowing higher tax deductions for child care expenses and somehow getting health insurance under control so that costs to employers go down and thus the same for employees.   A flat, across the board income tax reduction would help too.  

People question the accounting at Enron, Worldcom, etc........how about the government?   I am still perplexed at how we went from a big deficit, to a surplus and back to a deficit.   Sounds like creative bookkeeping to me.

I LIKE THE IDEA OF ANY TAX EXEMPTION.   I DON'T SEE WHY THIS WOULD HAVE A NEGATIVE IMPACT ON 401(K) CONTRIBUTIONS.   IT'S AN 'ADD-ON' TAX SAVINGS,   AS I SEE IT.

PREFERABLE TO MORE TAX RELIEF WOULD BE TOTAL INCOME TAX RELIEF.   I BELIEVE THE FAIREST WAY TO TAX PEOPLE WOULD BE TO RAISE SALES TAX AND PASS THE RAISE TO THE IRS.   IT WOULD BE CHEAPER AND EASIER TO ADMINISTER AND WHO COULD COMPLAIN ABOUT IT BEING UNFAIR?   THE MORE YOU BUY, THE MORE TAX YOU PAY.   BUT SINCE YOU'RE BRINGING A LOT MORE MONEY HOME, YOU CAN BUY MORE (AND PAY MORE TAX).

  WOW, THE MORE I THINK ABOUT IT, THE MORE I LIKE IT.  

It would be better to make dividends deductible to corporations (similar to the treatment of debt) but keep them taxable to the recipient. I know there is less political support for this but corporate income taxes are already relatively unimportant to the federal government compared to individual income taxes.