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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: limtex who wrote (98065)7/27/2002 1:39:34 PM
From: Zeev Hed  Read Replies (2) of 99280
 
I don't think that is a good idea. If at all you want to change the corporate tax code, make dividends tax deductible to corporations (like interest is) and don't tax dividends to individuals (nor interest). That will cause balance sheets to be weighed more toward equities, and less debt and reduce the tax evasion process of companies buying back their stock, and make the tax rate of corporations exactly equal to the top rate for individuals. It used to be that the Tax receipts from corporations were about 30% or more of total IRS receipts, now they are less than 18%. I believe the reason might have been that in the early sixties the marginal tax rate of individual was punitive at some 70% or so, while corporate taxes were roughly at the 40% level. Many wealthy individuals simply chose to get taxed as "corporations". Now that the marginal tax rates are closer ($35% and 39.6%) the impact is smaller and more individual income might be taxed as individual income. Still, many of the super wealthy will fight for that marginal 10% difference in differential marginal tax rate. There is no rational reason to put the tax rate at the same level particularly if dividends not be taxed and be expensed by corporations (that should be revenue neutral), however, the capital structure of corporate America will become much more rational and more relying on dividend paying equity rather than interest paying debt. More companies would then be paying dividends than doing those stock buy backs.

Zeev
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