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Politics : Formerly About Advanced Micro Devices
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To: Road Walker who wrote (370878)2/14/2008 7:57:00 PM
From: brushwud  Read Replies (1) of 1584956
 
Essentially wealth (passive dividends) gets taxed at a lower rate than work (wages).

Dividends are taxed twice: once when the corporation pays income tax on its profit and again when some of the remainder is paid as dividends and shareholders pay income tax on the dividends. Interest (on debt) is deductible to corporations, but not dividends (on equity).

As a consequence, corporations are biased in favor of using debt finance instead of equity and have more highly leveraged balance sheets than they otherwise would. And the disincentive to pay dividends causes corporations to hoard cash more than they otherwise would or use it to buy other companies and conglomerate more than they otherwise would.

What Bush should've done was make dividends deductible to corporations as an expense and have individuals pay full income tax at their various rates. But it wasn't politically acceptable to give corporations a tax break, so they reduced the individual tax rate on dividends instead.
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