Jinn of Current Events

Companies should be allowed to treat dividends as an expense, just like interest payments on debts. Treating both equally would improve corporate accountability. More profit would go to shareholders, thus increasing their interest in and leverage on corporate behaviour. And there would no longer be a double-taxation of dividend income, which amounts to taxation without profit and may encourage executives to cook their books (by playing games with bottom line results). Other consequences include markedly better price signals in stock markets, an immediately higher valuation of future business profits, one less distortion in capital markets (with no bias towards debt and junk bonds), and a renewed comparative advantage for the US economy. Further, because of the tax-enforced bias against dividends, many people have forgotten (or never discovered) that shareholders are supposed to profit from the businesses they wisely invest in, rather than hope for (temporary) bubbles in share prices.

Observe the distorted title in the NYT article: No Tax on Dividends Under Bush Stimulus Plan, when the real scoop is that Bush is proposing to abolish the irrational double-taxation of dividends (once as corporate "profit" and a second time as shareholder "income"). Under the Bush proposal, dividends will still be taxed, but only once, not twice. The NYT also claims that such a measure could cost the government $300 billion over 10 years as if that money belonged by right to the government and was being wrongly taken away... Even if we assume that so much dividend-double-tax money will really be "missing" from government budgets (which ignores the current bias towards tax-free interest payments) the benefits of the measure are so fair, large, and lasting that only lunatics or rabid marxists could oppose it.

As usual, some people will complain that reductions in taxes (if not their outright abolition) benefit the rich. Which is true and normal, since the 37% of the American population who do not pay any Federal Income Tax are by definition not rich. What these critics forget or ignore is that wealth is not caused by government confiscation; on the contrary, the more rich people there are, the better off we all are. The richest Tyrants of the past could never even have dreamed of the wealth available to the poorest population in the USA today: cars and superb roads, electricity, colour TVs, air conditioning, CDs for instant concerts even long after the death of musicians, millions of books, airplanes, specialized magazines, central heating, computers and Internet access, microwave ovens, daily newspapers, fresh fruits at any time of the year, colleges, the Bill of Rights, and endless opportunities. By nature, taxes make it harder for the rich to create more wealth and very hard for the poor to become rich.