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Author: boad Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35357  
Subject: Bonds and Bush Proposal to End Dividend Taxes Date: 12/7/2002 3:46 PM
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As widely report, there is speculation that the Bush Administration will eliminate "double taxation" of dividends -- either at corporate or individual level.

Here's one story:
http://business-times.asia1.com.sg/innews/story/0,2276,66126,00.html

Whatever ones views of tax cuts, some concerns about this specific proposal:

1. If done at individual level, one newsletter writer chortled, ""This would destroy the municipal bond market and would cause more money to pour into the stock market." Won't destroying the municipal bond market have serious downside -- e.g., taxpayers (i.e., us) will have to make up any funding slack?

2. Whatever the problems with tech companies, technology -- information technology, biotech, materials science, etc. -- is the driver of our brand of economy and standard of living. Many of these companies retain earnings to grow (as does old economy companies like Berkshire Hathaway--WEB authorized a dividend once and said never again). Would this proposal help cut off funding of innovation that is fundamental to our brand of economy? Is this some kind of government anti-industrial policy?

3. Would this proposal be necessarily a plus for blue chips, rather might investors go after stocks with really high dividend yields like royalty investment trusts (e.g., ERF) and business development companies (e.g., ALD)?

4. About 75 percent of dividends go to people with incomes over $100,000. If looking for proposals to stimulate demand, wouldn't better to target people with marginal propensity to spend?

5. Do we want the government in the business of goosing the stock market? Manipulation in plain sight! Didn't government manipulation of the Japanese stock market smash its credibility?
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