The Dividend Tax is Double Trouble

Citizens for a Sound Economy (CSE) is delighted at news reports that President Bush may propose an economic growth package that completely repeals the dividend tax, effective immediately.

The dividend tax never made economic sense. Corporate profits are taxed by the federal corporate income tax. Taxing those profits again when they are distributed to stockholders as a dividend payment is double taxation.

This double taxation punishes investment and distorts capital markets. One result is an overemphasis on stock prices that skews the market in favor of growth stocks instead of older, more predictable businesses. For this reason, the dividend tax encourages companies to take on more debt than they otherwise would.

CSE President Paul Beckner commented:

“It looks like President Bush is lining up to hit a hole-in-one tomorrow. The repeal of the dividend tax is at once both a bold, long-term reform of the broken U.S. tax code, and a measure that will increase economic growth, jobs, and the stock market by 2004. The President’s speech tomorrow could mark the first step in a profound overhaul of the U.S. tax code.”

“Meanwhile, the left doesn’t have any ideas of their own for fixing the tax code and getting the U.S. economy moving again. Instead, all we’re getting is tired old class warfare arguments and maybe a half-baked proposal for a payroll tax holiday.”

“It’s time for all Americans to recognize that the dividend tax is inefficient and punishes savings and capital formation. For the sake of our economy, our workers, and our investors, let’s repeal the dividend tax.”

“CSE hopes President Bush will propose this and other tax reform measures to encourage economic activity, such as accelerating the income tax cuts and making the repeal of the death tax permanent.”