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Tax on Dividends

President Bush has announced a proposal to abolish the Federal tax on dividend payments.

This proposal is defended partly on the grounds that reducing taxation (i.e. letting people keep more more of their own money) is generally a good thing, and partly because taxing dividends is ‘double taxation’ (the money that companies make already being taxed via Federal Corporation tax – which is actually quite high in the United States).

However, there is another factor to be considered. Financial institutions such as Pension Funds do not tend to be taxed as highly on their share holdings as individuals are (if indeed such trusts are taxed at all), so the effect of taxing individuals on their share holdings (not just the dividend tax but capital gains tax) is to concentrate a higher and higher percentage of stock into the ownership of financial institutions.

In short a group of hired managers in financial instructions ‘owning’ corporations managed by another group of hired managers. This may well be unhealthy (with a ‘magic circle’ of managers having developed, who tend to sit on each other’s ‘remuneration committees’ and lobby for State and Federal laws to make takeovers [if they are a threat to managers] more difficult and …)

In Britain the government also considered the difference between the regime of personal and financial institution taxation a problem. However, here the government responded by increasing the taxes that the pension funds (etc) had to pay – thus undermining further people’s incentive to save.

For all its many problems the United States is still a better country than Britain.

4 comments to Tax on Dividends

  • David Perron

    But our beer sucks. Still, as long as we have British imports, we have the best of both worlds. Though we have to pay through the nose for it. Do you realize what a 6-pack of Samuel Smith’s costs here?

    I guess it’s more than twice as good as the best we have to offer, so it’s probably a bargain.

  • Theodopoulos Pherecydes

    Every sales tax in the United States involves double taxation since retail purchases are made with after-tax income. The Repulsivecants don’t care about “double” taxation. They just want to stare the government of money.

    That would be fine if they could keep a handle on the deficits, but they can’t.

  • Tom

    Theodopoulous is correct to note that a lot of supply-side tax cuts could be seen as designed to starve Congress of money. Reagan was attacked – usually by tax-and-spenders – for his deficits, which in truth forced cuts in aspects of public spending.

    It is true that the current GOP leadership has been weak in holding the line on spending, although that could improve now that the Republicans have won control of the Hill, although I would not bet the farm on it, given my low view of the political class.

  • Betting the farm on it indeed! Bush’s farm plan was, if you’ll pardon the pun, a big load of pork.