Bush plan offers dividends for us all

With a new majority of his fellow Republicans controlling Congress, President Bush on Tuesday called for an aggressive $670 billion in tax cuts over 10 years to encourage spending and investment and, by doing so, turn the wheel of the economic recovery.

Speaking before the Chicago Economic Club, he called for eliminating taxation on dividends earned on stocks, increasing by $400 the tax credit for children, ending the ”marriage tax” (the higher taxes paid by many couples than if they were single) and advancing and making permanent his 2001 tax cuts.

”Americans deserve to know their tax cuts will not be taken away,” he said. ”We can preserve the hard won gains our economy has made and advance toward greater prosperity.”

These are good ideas.

In particular, eliminating taxes on stock dividends would help individual investors and companies. The top tax rate on dividends now is 38.6 percent (the same as for income), compared to 20 percent for capital gains, the rate used for sale of stock.

That disparity has encouraged companies to work more for short-term stock price increases to keep and attract investors rather than for steady increases in value paid out in dividends.

And the current system encourages companies to take on debt to promote growth, because the debt can be deducted from taxes owed, according to a study by Jason Edwards, a staff economist at Citizens for a Sound Economy, a conservative think tank.

Dividends also are taxed twice, first when the company pays its business taxes, then when the shareholder pays his personal tax on dividends. ”But of the share that is paid to taxable owners, as little as 36 cents of every dollar in profit goes into their pockets,” notes the Washington Post. In other words, the double tax rate can be as high as 64 percent.

”It’s immoral to tax dividends twice,” Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University, told us. ”This tax cut is long overdue.”

Democrats are portraying the Bush plan as one that only helps the wealthy and have devised a plan of their own amounting to $136 billion over 10 years. It would include a one-shot $300 tax credit to families and more unemployment benefits.

”Our proposal is targeted to consumers” but the Bush plan ”is targeted to wealthy families,” said Rep. Steny Hoyer of Maryland, the Democratic minority whip.

Actually, Mr. Adibi said, ”more than 50 percent of American workers are exposed to the equity market” through pensions, 401(k) plans and individual investing. ”If the dividend tax cut goes through, it would boost the stock market and increase consumer confidence, which would increase consumer spending.”

Now it’s Congress’ turn.

We hope Rep. Loretta Sanchez, D-Santa Ana, lives up to her ”blue dog” Democrat label as a tax-cutter and goes along. And O.C. Republicans should make this good plan even better by proposing to eliminate capital gains taxes and cutting the top income tax rate immediately to the Reagan-era 28 percent from 38.6 percent.

Citizens have first call on the product of their labor, not the government.

LOAD-DATE: January 16, 2003