Major -- You yourself have insisted that the biggest problem with the economy right now is investor/consumer confidence. I agree that its A problem with the economy. It was the primary problem a while back ... Over the last half-year or so though, consumer confidence has started falling apart as well. I think the recession has dragged from a stock-market driven issue to now finally starting to affect consumers. I'm not convinced this move will have a short-term positive impact on the market (outside of one-day spikes like today), but if it does, that will definitely be helpful, and make me a happy guy. It will also provide companies with access to capital, as I've outline above. This will allow increased investment, and job creation will result. I agree that it would create capital for businesses, but I'm not sure it would lead to job creation - at least not the type of job creation we need. That can only be created by increased consumer demand, imo. Don't forget about the other components of Bush's plan -- the $400 rebate to middle class parents and the extension of unemployment benefits. This should provide additional short-term relief. These I agree with. I don't know enough about the various components of the plan -- I haven't looked at it yet -- but these are definite plusses. It is better to exercise sound financial and economic judgment than a temporary quick fix -- which what the Dems are pushing with their public works projects. The Democratic plan released today actually had some interesting ideas as well. They were all short-term, but things like a $50k investment exemption for small businesses. I still don't think that's the right way to go, but it's another form of business-boosts. The nice thing about the Democratic proposal is there are no long-term consequences of the plan. It's a $120B short-term boost or something along those lines. I agree with you on the extension of capital loss carry-forwards. Yikes, we agree on something. What is the world coming to!
I have no idea what possessed me to start using the whole italics thing....needless to say, I don't play around with HTML much.
I have to disagree. A public policy that pushes money to be placed into a overspeculated stock market is a criminally bad thing. The stock market for the fourth year in a row could post a double digit and still be overvalued. The current market valuation has already built in strong earning rebound, which no econmist is even forcasting for next year. Forcing companies to pay more dividends is actually a very good thing. Dividends play a significant part of the historic 10% return in equity markets. The trend of late is for companies to pay little or no dividends. The return of stocks is now left to only growth and speculation. There is no evidence that equity is growing any faster now than previously, which implies that companies are not using the dividend money to increase their growth.
So if I'm reading between the lines correctly, are some of you arguing that encouraging companies to pay dividends is a good thing because it makes companies prove they are financially sound? If so.....I can see that.
No. Paying dividends to the owners of the company solidifies the owner's return. I think the breakout of the historic 10% return in the equity markets has been, 7% growth and 3% dividends. Of late the dividend return has become non-existant. One would hope that the company would take the 3% of dividends not paid out, reinvest it in the company, and bring the growth rate to 10%. This has not happened. The dividend return has been replaced by a speculative return (which implies that investors are more willing to accept higher valuations). If investors ever come to their senses and the equity market valuations return to their historic norms, the investors will start to demand dividends again to enhance their return.
Analysis Finds Little Gain in Tax-Cut Plan 2 Economists Assess Dividend Proposal By John M. Berry Washington Post Staff Writer Monday, January 6, 2003; Page A01 Eliminating taxes on dividends paid to individuals, the centerpiece of President Bush's stimulus package, would do little to spur economic growth or reduce the nation's jobless rate, according to an analysis this weekend by two prominent economists. Bush is to provide details of his plan in a speech tomorrow. Allen Sinai of Decision Economics and Andrew F. Brimmer, a former Federal Reserve Board member who heads a consulting firm, said that even a much broader combination of additional spending measures and tax cuts worth nearly $500 billion over the next five years would raise growth by only about a half-percentage point and reduce the unemployment rate by only one-tenth or two-tenths of a percentage point this year and next. The impact of a stimulus package much larger than the one the administration is expected to propose is so small, Sinai told a panel session at the annual meeting of the American Economics Association here, because "the economy is so large" relative to the amount of stimulus. Other economists on the panel did not challenge the conclusions of Sinai and Brimmer, but several criticized the stimulus packages analyzed because they would lead to rising federal budget deficits. Treasury Undersecretary John Taylor defended the administration's intention to propose a stimulus program, saying that it would improve the economy's ability to grow in both the short and long run. "Our pro-growth policies will act as much on potential gross domestic product as on actual GDP," Taylor said. Administration officials have indicated that the economic package would include spending and tax cut proposals totaling about $600 billion over the next 10 years. In addition to eliminating the tax on dividends, Bush plans to call for allowing businesses a faster tax write-off of the cost of investment in new equipment to spur such spending. According to the Sinai and Brimmer analysis, an alternative stimulus measure favored by many Democrats, a one-year reduction in Social Security payroll taxes paid by workers and employers, would also give the economy only a minor boost. Despite the relatively small impact on economic growth and unemployment, Brimmer and Sinai said they favor implementation of a large stimulus package because they fear the U.S. economic growth would not accelerate enough to regain the ground lost in the 2001 recession. "The need for additional stimulus seems apparent from the sub-par performance of the U.S. and global economies now in evidence," they said in the paper presented at the American Economics Association session. The large reduction in interest rates by the Federal Reserve, "while necessary, has not been sufficient to bring the economy back to [an] adequate performance." According to many forecasters, the U.S. economy grew by about 2.8 percent last year, but at only about a 1 percent annual pace in the final three months of the year. Last year's growth was not strong enough to bring down the unemployment rate, which reached 6 percent early last year, dipped slightly, and then returned to 6 percent in November. However, if the conflict with Iraq is settled either without a war or with a fight that is over quickly, many forecasters expect growth to approach an annual rate of 4 percent in the second half of the year. Sinai and Brimmer said they do not think growth will improve that much without additional fiscal stimulus. Among the panel members expressing concern about future budget deficits was Alice Rivlin of the Brookings Institution, a former director of the Congressional Budget Office and a deputy director of the Office of Management and Budget under President Bill Clinton. "You need to be very careful that you do not create an unfixable problem in the long run" by reducing federal revenue, Rivlin said. In particular, she criticized another part of the Bush package -- speeding up cuts in personal income tax rates now due in 2004 and 2006 and making them permanent. "Making the tax cuts permanent doesn't do much to help the economy in the short run and leaves policymakers a hell of a hole to climb out of in 2012," she said. Economist George Von Furstenburg of Indiana University sharply criticized the plan to cut taxes when the country has been hit with what he called "a permanent spending shock" from the terrorist attacks in September 2001. With federal spending going up to improve homeland security and probably to cover the cost of a war with Iraq, the Bush administration should take immediate steps "to stabilize tax rates to cover that spending," he said. Fed Gov. Edward M. Gramlich, also a former director of the Congressional Budget Office, told the session that monetary and fiscal policies should have "anchors" in the long run. For monetary policy, the anchor is keeping prices stable. "Fiscal policy should be anchored in the long run by the need to preserve overall national saving rates and prevent explosive growth in government debt," he said. "Over this long term, it is desirable to have budgets roughly in balance; or, to say it another way, the long-term budget constraint of the government should be satisfied without requiring unacceptable increases in future tax rates or cuts in future spending," Gramlich continued. That does not mean, he added, that you can have short-term actions to stimulate a lagging economy, but they should occur only while keeping that long-term goal in mind. Sinai is chief economist at Decision Economics in New York. Brimmer's consulting firm, Brimmer & Co., is based in Washington.
Democrats Blast Bush on Economy, Push Rival Plan By REUTERS Filed at 5:24 p.m. ET WASHINGTON (Reuters) - Deriding President Bush's expected $600 billion economic plan as fiscally irresponsible, congressional Democrats announced on Monday a rival package that they said would boost the lackluster economy without adding to long-term deficits. Democratic leaders in the House of Representatives on Monday called for injecting $136 billion into the economy this year through tax rebates, aid to the states and extended benefits for the unemployed. While much smaller than the $600 billion 10-year plan centering on tax cuts to investors that Bush was expected to unveil on Tuesday, Democrats said it would actually put more money into the economy sooner. ``What we've done is design a package that is frontloaded and fast acting, deliberately,'' said Rep. John Spratt, a Democrat from South Carolina, at a news conference. ``We have a theme to this package. It is short term stimulus, long term balance,'' he added. ``And that's what you'll find lacking in the proposal the president makes tomorrow.'' With Republicans controlling the House and the Senate as well as the White House, Democrats have little chance of getting their proposal into law. But it gives them an alternative to rally around while criticizing Bush's plan. Democrats argue that Bush is using the slow economy as an excuse to cut taxes for the wealthy even though the government is facing added costs from a possible war with Iraq. In a speech in Chicago on Tuesday Bush is expected to call for slashing taxes on dividend payments to investors as a way to boost the stock market. TAXPAYER REBATES, AID TO THE STATES In their alternative plan, Democrats called for taxpayer rebates, similar to payments included in Bush's 2001 tax cut. ``This time it will go to everybody who has earned income,'' said Spratt. ``You will be able to get up to 10 percent of $6,000 in earned income paid back to you by the Treasury,'' he added. They also called for extending unemployment benefits to laid-off workers who have exhausted regular benefits. A similar program expired on Dec. 28, leaving nearly 800,000 unemployed workers without benefits. Democrats also called for increasing investment write-offs for small business and economic aid to cash-strapped states to help them pay Medicaid health care benefits for the poor. Included too was a call for more money to help states cover the cost of increasing domestic security in the face of ongoing terrorism threats. Republicans say Bush's plan to slash taxes on dividends will boost stock prices after three years of losses that have ravaged investors. Democrats said they wanted to help the job market rather than the stock market. They argue that Bush's proposal is too skewed toward the rich and that it will provide too little immediate impact while deepening budget deficits. ``This is for the wealthiest people in our country,'' incoming House Democratic Leader Nancy Pelosi of California told a news conference. Rep. Steny Hoyer, a Maryland Democrat, said the average taxpayer makes less than $75,000 a year and the dividend benefit would give them about a $42 tax break. Some 25 percent of the dividend tax break will go to people making more than $1 million a year. They will get a tax break worth more than $27,000, he said. Republicans accuse Democrats of engaging in class warfare and argue that the well-off pay a disproportionate share of taxes.
Eliminating taxes on dividends paid to individuals, the centerpiece of President Bush's stimulus package, would do little to spur economic growth or reduce the nation's jobless rate, according to an analysis this weekend by two prominent economists. These are two bright people. Here's the simple facts (according to Major): If I am a company, and we do this supply-side stimulus, I'm going to take more profits. I'm certainly not going to build a new factory or other infrastructure if I'm not even selling the products I can create now. Get people buying my stuff and I'll consider it. Essentially, any type of stimulus in this recession has to be demand-driven, and that means putting money in the hands of a large number of people who want to but can't spend right now. The supply-side stimulus is a great idea during good times - late 80's and late 90's - to counteract price pressures (inflation). When demand is already high, there is pressure on prices to rise. Give money to businesses at that point, so they can expand capacity which increases supply and reduces prices. That will extend an expansion. However, supply-side moves aren't going to help things when supply is not a problem as-is. Oh well - neither party seems committed to a true stimulus system so we're going to get some mess of a package that spirals the deficit and really doesn't do anything good.
This isn't the kind of taxcut we need. In fact, it's one of the stupidest tax breaks I've heard of. Smart move to propose a tax cut that benefits people who are already rich and does almost nothing to help the middle and lower classes. For those not familiar with economics, this is known as Reaganomics or the technical term of trickle down economics. The theory is that giving tax breaks to wealthy individuals and corporations will get them to spend more money to stimulate the economy and provide jobs for the lower and middle classes. But unfortunately what happened is that the wealthy and the corporations simply kept the extra money to increase their own wealth and the lower and middle classes got poorer. Good move Bush, next time you might want to disguise your stupidity a little better.
Good move by Bush... Not sure why it only covers 1.2 million people, but it focuses on the right goals and the right target audience. http://www.cnn.com/2003/ALLPOLITICS/01/07/economic.stimulus/index.html <I>WASHINGTON (CNN) -- President Bush is to unveil an economic stimulus program Tuesday that would eliminate taxes on stock dividends and make available up to $3,000 to help unemployed people find jobs, administration officials said. The unemployed will be able to use the money to pay for job training, child care and moving expenses and would keep any balance if they find a job within 13 weeks of becoming eligible. The White House put the cost of the program, which will cover 1.2 million people and will be administered by states, at $3.6 billion. Administration officials cast these "personal re-employment accounts" as an innovative way to help unemployed Americans find work -- and said letting people keep the balance if they find work quickly would be an incentive to intensify their job searches. </I>
I am not rich. I do own stocks/mutual funds that pay dividends. Cutting taxes on them would help me. I believe that many middle class taxpayers probably own some type of fund that pays dividends. It is not just the rich that own stocks.
Interesting commentary... ____________ Who's Playing 'Class Warfare'? By E. J. Dionne Jr. Tuesday, January 7, 2003; Page A17 Be wary. By offering certain facts here, I may, according to President Bush, make myself guilty of "class warfare." The president is proposing an economic "stimulus" plan that will certainly stimulate the very wealthiest Americans. Its centerpiece will be an end to taxes on dividends, which will cost the government about $300 billion over the next decade. It happens, according to Citizens for Tax Justice, that roughly half that money would go to people earning more than $350,000 a year, to the top 1 percent of Americans. The 80 percent of households earning less than $73,000 a year will get less than 10 percent of this stimulant. With so many Americans losing their jobs and their health insurance, with senior citizens getting clobbered by prescription drug costs, with money short for educating kids, you'd think we could find better ways of stimulating the economy. But everything I just said is politically incorrect because it involves a kind of warfare of which the president most definitely disapproves. "I understand the politics of economic stimulus, that some would like to turn this into class warfare," Bush said last week as he was giving reporters a tour of that very nice ranch he owns in Crawford, Tex. "That's not how I think." Now, if I were in the president's position -- or in the position of the wealthy contributors who lavishly financed the campaigns of his political friends last year -- I wouldn't want anyone to talk about class either. God forbid we look at the details of exactly who benefits most from this administration's policies. But it would be easier to respect this attack on class warfare if the president and his allies disavowed such belligerency themselves. Alas, they don't. They just play a different kind of class politics by demonizing those elites who are not on their approved list of corporate chiefs, oil millionaires, heirs to large fortunes and the like. The president, for example, loves to bash the rich if they got that way by being trial lawyers. Arguing for limits on medical malpractice awards in a North Carolina speech last July, Bush told the story of Jill and Chet Barnes of Las Vegas. "Jill is a student teacher," Bush said, "and her husband is a fireman." Because Nevada had such high malpractice insurance rates, Jill, who was eight weeks pregnant at the time, was having trouble finding a doctor -- "that's got to be really frightening to a young mom" -- and eventually got one by traveling an hour and a half to Arizona. It didn't take long for Bush to describe the villain of the piece. He declared that "what we want is quality health care, not rich trial lawyers." Yes, there's a lot to be said about the malpractice issue. And you felt bad for the young couple. But if setting up a teacher and a firefighter against "rich trial lawyers" is not class warfare, then Karl Marx is the current editor of the Wall Street Journal's editorial pages. Republican class warfare is not confined to trial lawyers. Almost daily, Republicans attack privileged groups: "the cultural elite," "the Hollywood elite," "the intellectual elite" and, of course, "the liberal elite." Bush merged some of these categories in 1994 when he was running for governor of Texas. No slouch as a fundraiser himself, he chided Ann Richards, his opponent, for going to California to raise money from the "liberal elite." That same year, the president's brother Jeb, running for governor of Florida, defended his views by declaring: "These are mainstream ideas, ideas that matter, whether the intellectual elite in this state like them or not." The Bush sons learned from a master. A lovely bit of class warfare was the former president Bush's assault on his 1988 Democratic opponent, Michael Dukakis, for representing the views of the "Harvard boutique." In 1992 Vice President Dan Quayle divided the world into "two cultures, the cultural elite and the rest of us." You know you're dealing with class warfare when an "elite" is set up against "the rest of us." George H.W. said he quite liked the speech. Detect a pattern? Class warfare around cultural issues is wonderful. It distracts attention from the grubby details about how certain economic policies may benefit a rather small group of Americans who just happen to be the wealthiest Americans. Oops, I committed class warfare again. Years ago, Harold Lasswell, the great political scientist, suggested that one of the fundamental political questions is "Who gets what, when and how." It's a question we're not supposed to ask anymore.
Larry Kudlow is one of the sharpest people on Wall Street. ====================================================== Bush’s Big Bang Dividend tax relief leads the pro-growth charge. January 7, 2003, 8:00 a.m. President Bush has surprised nearly everyone with his decision to propose a big-bang economic growth package that includes a 100% tax exemption on dividends received by individuals. Eliminating the double taxation of corporate dividends will raise stock market values, increase investor returns, and improve both corporate governance and corporate finance practices, in effect becoming the most significant pro-growth tax reform since President Ronald Reagan slashed personal income-tax rates twenty years ago. This policy change will lower the effective tax rate on dividends paid from corporate profits to 35% from roughly 70%. Taxpayers receiving dividends will now keep 65 cents of each new dollar of corporate profits rather than the 30 cents they now retain under current tax law. Since individuals and businesses spend and invest their money more wisely than government, this tax reform will make the economy more efficient and better able to grow to its potential. The move will also free up more investment resources for shareholders and corporations, thus making more funds available for entrepreneurship, business expansion, and job creation in the years ahead. Investors, of course, will now demand greater dividend payouts from companies — a good thing. Cash dividends will be tax-free, while interest payments from corporate bonds will be taxed at the top personal rate (which could drop to 35% under the president’s new proposal). Shareholders will keep 100 cents on each new dividend dollar, compared with only 65 cents on each dollar of interest paid from corporate bonds. That will force corporations to reduce their issuance of new debt and rely more heavily on dividend-paying stock finance. This tax-induced shift in shareholder demand from interest-bearing bonds to dividend-paying stocks will have wide-ranging benefits. It will stop firms from over-borrowing and debt leveraging up to their eyeballs — a practice that has worsened economic downturns and hastened business bankruptcies. And as the system of corporate funding better balances equity and debt, the business sector will grow healthier and the economy stronger. Also, a new model of corporate governance will take hold. Just as taxpayers wish to keep more of what they earn from the government, tax-free dividend payments will encourage shareholders to demand more of what corporations earn. This will force companies to reduce their excess cash-on-hand and pay more money out to their shareholders. In recent years too many CEOs have used corporate cash for ill-conceived acquisitions that all too often put empire-building over higher shareholder returns. Now boards of directors will pressure management to turn the cash over to investors. This change in corporate behavior will streamline operations and avoid the failed over-conglomeratization that sank stock market prices in the 1990s, especially in the telecom, media, and energy businesses. Many firms, especially technology companies, will now be forced to start paying out their unnecessarily high cash balances to shareholders. Outfits like Microsoft, Cisco, and Dell will undoubtedly go down this road. Additionally, investors will more often judge corporate creditworthiness on the basis of dividend yields (dividends divided by stock prices) instead of conflicted research reports. In fact, greater dividend payouts and yields will become the key benchmarks in judging the worth of stock investments. All this should be a much-needed tonic for the major stock-market indexes. Since the current economic slump began in 2000, the stock-market decline has been the economy’s central problem. Shrinking market capitalizations have damaged corporate creditworthiness and frozen business operations. In all too many cases huge stock-market losses induced CFOs to play fast and loose with accounting ethics. Investor confidence evaporated as Worldcom, Enron, Tyco, Adelphia, and a list of others grabbed the headlines. So, last year was the first since 1912 that an early economic recovery was accompanied by a plunging stock market. President Bush’s bold decision to eliminate the double taxation of corporate dividends will help restore investor confidence and the vitality of American businesses. Since business creates jobs, a healthier corporate sector is crucial to a full flushing-out of the nascent expansion. The Bush administration's new growth package will also include a speed up of income-tax cuts for all brackets, a substantial cash-expensing bonus for small business equipment write-offs, and a quicker implementation of child tax credits and marriage-penalty deductions. Democrats, of course, are dusting off their class warfare arguments, criticizing the Bush plan as another tax cut for the rich. But this is a content-less position that has failed miserably in recent elections. The president has correctly understood his mid-term election mandate to grow the economy and win the war against terrorism. On the war front, he has proven his mettle since Sept. 11. And on the economy, he is clearly willing to invest his new political capital in pro-growth tax measures, as well as pro-market reforms for health care and prescription drugs. The nation will benefit enormously as he moves swiftly on all of these fronts. — Mr. Kudlow is CEO of Kudlow & Co.
More comments... _________________ An Irrelevant Proposal By PAUL KRUGMAN Here's how it works. Faced with a real problem — terrorism, the economy, nukes in North Korea — the Bush administration's response has nothing to do with solving that problem. Instead it exploits the issue to advance its political agenda. Nonetheless, the faithful laud our glorious leader's wisdom. For a variety of reasons, including the desire to avoid charges of liberal bias, most reporting is carefully hedged. And the public, reading only praise or he-said-she-said discussions, never grasps the fundamental disconnect between problem and policy. And so it goes with the administration's "stimulus" plan. Boosting a stumbling economy ("It's Clinton's fault!" shouted the claque) isn't rocket science. All a sensible plan must do is focus on the present, not the distant future; on those who are suffering, not on those doing well; and on those who are most likely to spend additional money. Right now a sensible plan would rush help to the long-term unemployed, whose benefits — in an act of incredible callousness — were allowed to lapse last month. It would provide immediate, large-scale aid to beleaguered state governments, which have been burdened with expensive homeland security mandates even as their revenues have plunged. Given our long-run budget problems, any tax relief would be temporary, and go largely to low- and middle-income families. Yesterday House Democrats released a plan right out of the textbook: aid to states and the jobless, rebates to everyone. But the centerpiece of the administration's proposal is, of all things, the permanent elimination of taxes on dividends. So instead of a temporary measure, we get a permanent tax cut. The price tag of the overall plan is a whopping $600 billion, yet less than $100 billion will arrive in the first year. The Democratic plan, with an overall price tag of only $136 billion, actually provides more short-run stimulus. And instead of helping the needy, the Bush plan is almost ludicrously tilted toward the very, very well off. If you have stocks in a 401(k), your dividends are already tax-sheltered; this proposal gives big breaks only to people who have lots of stock outside their retirement accounts. More than half the benefits would go to people making more than $200,000 per year, a quarter to people making more than $1 million per year. ("Class warfare!" shouted the claque.) Even the administration's economists barely pretend that this proposal has anything to do with short-run stimulus. Instead they sell it as the answer to various other problems. (It slices! It dices! It purées!) Above all, it's supposed to end the evil of "double taxation." Now lots of income faces double taxation, in the sense that the same dollar gets taxed more than once along the way. For example, most of us pay income and payroll taxes when we earn our salary, then pay sales taxes when we spend it. So why has it suddenly become urgent to ensure that dividends, in particular, never be taxed more than once? That is, if they're taxed at all. In practice, the Bush plan would exempt a lot of income — rich people's income — from all taxes. Thanks to the efforts of lobbyists, today's corporate tax code has as many holes in it as a piece of Swiss cheese, and today's corporations take full advantage. Case in point: Between 1998 and 2001 CSX Corporation, the company run by the incoming Treasury secretary, John Snow, made $900 million in profits, but paid no net taxes — in fact, it received $164 million in rebates. This wasn't exceptional; the average tax rate on profits has fallen to a nearly 60-year low. Anyway, even to debate the pros and cons of dividend taxation is to play the administration's game, which is to change the subject. Weren't we supposed to be talking about emergency economic stimulus? No doubt the final version of the "stimulus" plan will contain a few genuine recession-fighting measures — a child credit here, an unemployment benefit there, a few crumbs for the states — for which the administration will expect immense gratitude. But the man in charge — that is, Karl Rove — is clearly betting that the economy will recover on its own, and intends to use the pretense of stimulus mainly as an opportunity to get more tax cuts for the rich. Ideology aside, will these guys ever decide that their job includes solving problems, not just using them?
An NYTimes story... ________________ The Politics of Portfolios: Bush Bets on an Investor Class By RICHARD W. STEVENSON WASHINGTON, Jan. 7 — In calling for the elimination of taxes on stock dividends today, President Bush is embracing the idea that the financial health of investors, particularly the millions of people who got into the stock market for the first time over the last decade and are now suffering the consequences, will be vital both to renewed prosperity and to his own electoral success. It is a gamble on both counts. For all that is said of Wall Street as an important barometer of economic activity and national psychology, it is not clear that putting more cash in the hands of investors and trying to give the market a lift will provide much help to the economy in the short run, economists said. Similarly, it is a matter of intense debate among political analysts whether investors make up a definable voting bloc that can be won over with a break on investment income or even a boost to the value of depleted portfolios. Some of Mr. Bush's Democratic critics even question the existence of a so-called investor class as anything other than an excuse for Republicans to cut taxes again for the wealthy. For years, some Republican strategists have made a case that their party has an opportunity to attract the millions of middle-class people who make up the new investor class by emphasizing that its agenda of lower taxes, less regulation and more trade will be good for their efforts to build wealth. About half of all households now have some investments in stocks and bonds, either directly or through mutual funds and retirement accounts. More important in political terms, about two-thirds of voters are investors, making the stock market an increasingly compelling subject — especially with stock prices having just completed their third consecutive year of losses. "Bush is responding to Americans where they were hit hardest," said Frank Luntz, a Republican pollster. "Usually when you think of the economy getting worse, you think about unemployment, but this time it's stock-market driven. He has provided a tax relief package that will affect more voters than almost anything else he could have done. It will matter to them because they haven't seen their incomes go down, they've seen their retirement savings go down." But some of the administration's critics dismiss the entire notion of a mass investor class. To the degree that anyone cares about taxation of dividends, Democrats said, it is a thin slice of the very richest Americans who are already the Republican Party's patrons rather than the average working families that determine the outcome of elections. For all that investing became the national pastime when the market was rising, they said, stock market wealth is still so concentrated that Mr. Bush's proposal is nothing more than a new way of justifying tax cuts for wealthy Republican benefactors. They said the focus on dividends came about because other options appealing to conservatives, like corporate tax cuts, became politically problematic for the White House in the aftermath of last year's corporate accounting scandals. "This is so flagrant," said Kevin Phillips, a political commentator and the author of "Wealth and Democracy: A Political History of the American Rich." "It's not aimed at the little investor," Mr. Phillips said of the Bush plan. "It's aimed at the big investor and shrouded by a fog of phoniness. This isn't even trickle-down economics. It's mist-down economics." Eliminating taxes on dividends paid by corporations to their shareholders would amount to a tax cut of around $300 billion over the next decade, roughly half the total value of the economic plan that Mr. Bush intends to unveil in Chicago today. In remarks to reporters after a cabinet meeting at the White House on Monday afternoon, Mr. Bush cast his proposal on dividends as a potent way of getting the economy firing on all cylinders. Anticipating a rising chorus of Democratic charges that the Bush plan benefits only the wealthy, the president and his spokesman said the plan would help not only the economy but also a broad swath of the public. "It will encourage investment, and that's what we want," Mr. Bush said. "Investment means jobs." But he also said the change would be a matter of fairness, both in economic terms and for individuals, including many retirees, because it would end the practice of taxing dividend payments made by corporations to their shareholders after the same money has already been taxed as profit. "There's a principle involved," the president said. The White House spokesman Ari Fleischer said on Monday that there were 35 million people who received dividend income, including 10 million elderly people. "The president does not think it is right to tax savings and to penalize people who save, and the president does not think it is right to penalize people who plan for their future," Mr. Fleischer said. Responding to a question about whether Mr. Bush's proposal spread its benefits fairly among income groups, Mr. Fleischer responded that the president's plan would contain elements "that will help lower taxes for all Americans, give a boost to the economy, give a boost to growth." Although White House officials have in the past estimated that eliminating the tax on dividends could send the stock market rising by as much as 20 percent — the Dow rose 171.88 points, or 2 percent, on Monday — Mr. Fleischer said it was "impossible to predict any kind of stock market performance based on announcements out of Washington." But some liberal analysts said an investor class, at least as a mass phenomenon, was a political marketing myth. The Center on Budget and Policy Priorities, a liberal research group, cited an analysis of Federal Reserve data on Monday showing that 85 percent of the value of stocks and bonds was held by the top 10 percent of the income spectrum in 1998, the latest year for which comprehensive data is available. Citing I.R.S. data from 2000, the group said 22 percent of taxpayers with incomes under $100,000 reported any dividend income, while 72 percent of filers between $100,000 and $1 million and nearly all filers above $1 million reported dividend income. Mr. Bush's plan amounts to "an old, old Republican theory of trickle-down economics," said Representative George Miller, Democrat of California. Democrats also tried to link Mr. Bush's actions to the corporate accounting scandals and political firestorm over the Securities and Exchange Commission last year. They said Mr. Bush would do better to grant a big budget increase to the commission and assure that the accounting oversight board would act aggressively to restore investor confidence. "That's what will bring back confidence in the stock market," said Representative Robert T. Matsui, Democrat of California, "not some gimmick like dividend deduction."
I am not rich. I do own stocks/mutual funds that pay dividends. Cutting taxes on them would help me. I believe that many middle class taxpayers probably own some type of fund that pays dividends. It is not just the rich that own stocks. But the money isn't going to be substantive. Let's say you own $20,000 in stocks - more than the average middle class person, I believe. Right now, few companies give dividends. Someone above said historically, you get about 3% dividend rates though, so let's go with that. 3% dividend rates means you'll get $600 in dividends, or around a $150 tax savings. Not bad, but hardly a significant change in your income. And that assumes companies go back to paying their historical dividend levels - not likely, certainly not now since the companies aren't making much in profits as-is. One study found that an average family earning $75,000 a year will get something like a $50 annual savings from this. The middle class own stocks, but disproportionately less than the upper class. Someone making $100,000 a year is likely to own much more than twice the stock of someone making $50,000 a year. So the tax savings rate is much higher for the rich than the middle or lower classes.
I know that it is a human tendancy to see other peoples faults more than our own. I know that there must be some standard Republican response, but I don't know what it is. Having said that, isn't it great how no matter what is proposed on the right, we can count on the left calling out, "This only benefits the wealthiest Americans!" edit: I think looking back on this thread, that it might be yelling "Class Warfare!"
Having said that, isn't it great how no matter what is proposed on the right, we can count on the left calling out, "This only benefits the wealthiest Americans!" Maybe that's because it's all that the right proposes... Do you dispute the fact that a dividend tax cut is skewed to favor the wealthy? If so, feel free to present facts. Or keep accusing Democrats of calling a spade a spade. I guess it is certainly easier than actually arguing the merits.
I think the fact is clear who benefits most (dollar per dollar) from the elimination of the div. tax. I once owned a few stock positions, earned piddly dividends, and did not even notice the even more piddly tax. I seriously can't imagine how much stock you'd have to own before you noticed dividends. $150,000? $250,000 in stock? At least TJ will argue from the stance of the big picture, but he doesn't seem to argue that it is "spin" to say the wealthiest Americans will receive the lion's share of the break here. Some would simply argue they deserve it. Okay. As long as we're all being honest about it, I can listen to that argument. I would rather not support some slackers in the Hamptons who live off dear-old-dad's largess via stock dividends because dear-old-dad won't trust said slackers with the principal. Especially if that money could improve our dreadful public education system, for instance. I am more sympathetic to the picture of this increasing corporate responsibility and transparency. Those arguments make sense. However, Pole's original question is not satisfactorily answered for me. I don't have a Nobel prize (yet ), but it still seems to me that a less-than-enormous company that does not currently pay dividends will feel pressure to start paying dividends to make their stock more attractive (at least in the short term) to investors. If this keeps them from spending R&D, that could be a negative effect for the creativity and flexibility of, in particular, our tech sector. IMHO, they need to keep striving for the next generations of tech.
