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Volume CXXXII, Number 13 |
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Dividend tax cuts
TIMOTHY J. RIEMER
COLUMNIST
As President Bush gave his State of the Union address to Congress on Tuesday night there were two topics that really stood out above the rest. These two topics were of course the intensifying situation with Iraq and the slightly less than bullish economy. Many experts are saying that with his State of the Union speech, President Bush has outlined what he will need to accomplish in the last two years of his term. It is obvious at this point what President has planned for Iraq, but what does President Bush have outlined for to help boost what he calls our "recovering" economy?
The Bush economic plan has many different aspects to it but what has definitely become the cornerstone of his plan is to eliminate taxes that individuals pay on dividends. What this simply means is that when an individual receives a dividend he would not be required to pay income taxes on that dividend as he does today. One of the main reasons that President Bush is supporting this idea is that dividends, right now, are taxed twice. Before shareholders receive a dividend to pay taxes on, the firm itself must first pay taxes. Therefore the value of a dividend that a firm can give out to its shareholders is driven down by the taxes it must pay. President Bush and those that support his proposal view this as double-taxation, which it is.
Critics of cutting the dividend tax say that this is plan designed to benefit only the wealthiest in the United States Senate Democratic Leader Tom Daschle has actually deemed the proposed cut "The Leave No Millionaire Behind Act." It is true that this tax plan will benefit the richest people in America. The elimination of the dividend tax, however, will help the economy with its biggest wound, the stock market. The weakest part of the economy during this recession has been business investment. Due to the woes in the stock market, firms have not had the money to spend to keep workers employed and therefore to keep the economy growing.
The elimination of the dividend tax will hopefully spark the economy because it will give the stock market a boost. First, the tax cut will put more money in the hands of investors to invest which naturally helps the market. Second, even if investors choose not to reinvest their extra money in the market they will not need to take as much money out of the market. This too helps the stock market because the markets are driven down when money is taken out. Finally, for those companies that want to or need to hold on to their money, there is a provision in Bush's plan that allows shareholders to get a break on the capital-gains tax. No matter how you look at it this means that the stock is up and firms have the money to spend, to innovate, to hire, to invest, and to make the economy grow.
Unfortunately, the question still remains of why should a tax cut be put in place that benefits primarily the rich. Most Americans only invest in 401(k) plans now, which are tax-free anyway. Therefore most investors will not benefit from this plan. This proposed break on stock taxes, in my opinion, will not put money back into the hands of the people of the U.S., but actually into companies. The U.S public needs money in these tough economic times but companies need it more if we want to ever see the end of this troubled economy. Should we not put in place a tax cut just because it directly benefits the wealthy even if the tax cut is exactly what the economy needs to recover? I don't think so.
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