Tax-cut folly: Readers respond to "Bush's Dividend Payoff" by Scott Rosenberg.

Published January 9, 2003 8:30PM (EST)

[Read the story.]

Earth to John Kerry -- stop banging the "tax cuts for the rich" drum in the media. It will only get played as "class warfare" by GOP strategists. Plus, it's unnecessary. What Bush is doing -- substituting ideology for logic by claiming a dividends cut will "stimulate" the economy -- hurts the rich just as bad as the poor, and to any investor worth his salt, it smacks of G.W. playing politics with American wallets. Sure, Wall Street supports the dividends cut (why not?). It's when Bush starts claiming magical results from the elimination of a decidedly unsexy tax that he'll be laughed at by the very "investor class" he so covets. Cutting the dividends tax ... to stimulate the economy!??!?! First, investors will laugh -- but soon they'll be furrowing their brows and wondering what the hell this guy is doing with their economy.

Both the rich and poor need a growing economy to prosper. By substituting an ideological tax cut (dividends taxes are "unfair"!) for a logical cut that would stimulate the economy (say, a middle-class tax rebate), Bush is playing politics with the wrong group. No matter what the Journal's Op-Ed page says, Wall Street analysts will not parrot Bush's stimulus line on the dividends tax while the economy tanks. Their livelihood depends on making money, not supporting partisan politics. Analysts will say what they know: Only increased spending will get the economy on track, and that only comes through tax cuts to those who will spend.

All John Kerry and the Democrats have to do is tell the truth. Why wage "class war" when a simple lesson in Economics 101 is twice as damning? It's still the economy, stupid.

-- Jason Owens

Reluctant as I am to criticize a Bush criticism, Scott Rosenberg has overlooked one group of the population who will benefit from the repeal of the double dividend tax and who are not "the wealthiest" Americans. Many very small and family businesses form corporations and pay themselves with dividends rather than draw a salary as an expense to the business. In these cases, it is effectually the same person or group paying these taxes twice. In fact, most of the ultra-wealthy sit on big corporate boards and award themselves bonuses rather than vote dividends for all of the shareholders. Also, these very large companies are usually pretty good at avoiding taxes altogether anyway, while the smaller businesses don't usually have that opportunity. I think there is a tendency in politics to think that all business is big business and the rest of us are worker bees. For those of us who are trying to find a little freedom in this country by going into business for ourselves, this could help.

-- Susan Bartlett

I have a question for Scott:

Right now, since nobody wants to pay dividends because of the negative tax situation, the only way to make money in the stock market is through capital appreciation. Seems to me this is driving companies to keep their balance sheet looking the way short-term investors want it to look, lean. This tends to discourage the long-term investment in hard assets and R&D that can build the company's value over time -- and seems to encourage corporate behaviors that hurt employees and investors, such as downsizing and Enronesque accounting practices.

Wouldn't a shift of corporate strategy toward offering investors a mix of dividends and capital appreciation encourage/enable companies to make wiser decisions for long-term financial health and benefit all investors, large and small?

-- Quentin Eastman

One aspect of the proposed tax cuts on dividends that people don't seem to be paying much attention to is that it may refocus the emphasis of investment on companies that are actually producing something and thereby earning profits. This could well have the effect of cleaning up a lot of the recent corporate tendencies to inflate earnings in the interest of pumping up the bottom line, à la Enron. After the recent dot-com and accounting debacles, can this be a bad thing?

And let's remember that the first administration to suggest eliminating the double tax on corporate profits in this sense was Carter's.

-- Cornelia Read

What is especially puzzling about the dividend-tax change is that this will do almost nothing for most of the newer companies that do not pay dividends. The growth companies retain earnings for reinvestment purposes. Perhaps companies such as Microsoft and Cisco will be encouraged by their stockholders to begin to pay out those vast war chests, but I doubt it.

Hence, this is a pure payout to the country-club crowd who holds the established company stocks.

This sounds like the same kind of odd move that George H.W. Bush made by hauling the steel industry execs off to Japan in 1991.

-- Dave Koon

Scott Rosenberg repeats the claim that taxing corporate dividends is a form of "double taxation." I don't buy it.

Our tax system in general applies to the flow of money. This is why we have an income tax, not a wealth tax.

Corporations pay tax on the net influx of money (their profit). When the money flows out of the corporation to individual stockholders, the stockholders pay tax on their net influx of money (their income).

Sometimes taxes apply to net money flow (income taxes), sometimes to gross flow (sales, payroll and estate taxes). But always the principle is that money is taxed when it is transferred from one owner to another.

Saying dividends are "doubly taxed" means only that taxes were applied during the previous two transfers: first to the company, then to the shareholders. But it was also taxed during its previous transfer, and the transfer before that. You could equally well say that any money has been "triply taxed" or even more.

-- Michael Glass

Scott Rosenberg's piece on the administration's execrable plan to get the economy moving again by eliminating the tax on dividends deserves two responses.

The first is on the question of double taxation. Tax on dividends is not double taxation. For income tax and other purposes, a corporation is an entity in and of itself, separate and distinct from its owners and its managers. As a free-standing entity, it must pay tax on the money it earns. When it chooses to distribute the money it has left over to its owners, those owners receive income and must pay tax on it. If the corporation chose to use the extra money to pay its employees more (fat chance), those employees would have to pay income tax on that money. Why should the owners of a corporation not have the same obligation?

Second, I was frightened by his final comments about our only president's feeling that he does not "owe anyone an explanation," not even the members of his Cabinet who are responsible for turning his policy preferences into law. This is not how a leader works; a leader works very hard to make the people who work for him or her understand and feel and want the same things. This is not how a good manager works, either; a good manager stays until all the questions are answered, all the details are threshed out, and nothing is left ambiguous.

No, this is the outlook of a dilettante, a man whose WASP sense of entitlement tells him he needn't be bothered with all those nasty details. It's the outlook of someone who thinks that if he ends the meeting and beats a hasty exit, no one will notice that he's the dumbest person in the room. It's the outlook of someone who wants to end the meeting and get back on his treadmill.

This is the outlook of someone who has no business running a grocery store, let alone our country.

-- Kevin Golden

"Trying to understand why the dividend tax has suddenly risen to the fore of Bush's agenda is like trying to understand why he feels that Iraq is an imminent threat ... while nuclear saber-rattling North Korea is not. This is a president who doesn't seem to care much whether his program makes sense, as long as he can sell it."

That made me laugh out loud! It is so true. George Bush and his friends saw our surplus in the late '90s as something to plunder. And they have done it by selling us on all sorts of tax cuts that actually benefit themselves. Remember "it's your money!"? Well, I do. But our money somehow keeps winding up in their pockets.

These guys are con men, just as their friends, the upper echelon of Enron, are con men. It is unbelievable to me that anyone still falls for their con games.

-- Katherine Weber

The dividend-tax cut is a bad idea intentionally put in the plan to take your eyes off the other bad ideas in the tax cut. We'll scream for a while about that issue, they will cave ( looking very responsive while they are doing it and saddened that they weren't able to get it), but the rest of the tax cut will go in without much complaining.

-- Curtis Crowson

By Salon Staff

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