Re: "This economic neutrality could be achieved in a number of ways.[2] For example, corporations could be allowed to deduct dividend payments from their taxes (just as they do with interest payments)"
>>> That would have been the ideal way to eliminate the double taxation.
>>> Too bad Bush didn't choose to do it... and instead went with his weak and conflicted method.
>>> Under the wrong-headed Bush proposal:
>>> The tax code incentive encouraging corporate debt remains unbalanced (interest on debt is tax deductible, but dividend payments are not.) This encourages debt, as opposed to internally generated earnings, and heightens bankrupcy risks.
>>> Corps have only a little more incentive to pay dividends, since they are not deductible.
>>> Corps which traditionally played the stock watering game by relying upon stock options for significant portions of their compensation payments... will still do so as long as accountings regs are not reformed to require the expensing of stock options... the companies get a tax write-off for their stock option grants, but no deduction for dividend payments.
>>> They get a deduction for debt interest payments, they get a deduction for options grants (and don't have to declare them as an expense against earnings!), but dividend payouts to the stockholders are not deductible.
>>> Dividends paid into retirement accounts will still be taxed when they come out.
>>> Muni bonds and REITs will take a hit (since they are still taxable), and federal bonds, and interest rates on all must rise to compete with dividend paying tax-free stocks.
>>> Far better for Bush to have taken the rational approach and made dividend payouts deductible for the corporations - thus equal to the interest deduction in the eyes of the federal code... leveling the playing field with debt. If that hit federal revenue too hard, he could have removed corporate loopholes from the code. Corporations across the board would have raised dividend payouts, stocks would strongly rebound, retirement plans would not be disadvantaged, and economic incentives for earnings-led growth would have been much better.
>>> A wasted opportunity, and all for flimsy political calculations: he thought that because of the recent corporate scandals he couldn't be seen doing them any 'favors'.
>>> Short-sighted. Wasted opportunity. All Rove sees is politics... not economics. |
