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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35345  
Subject: Shrub: No taxes on Dividends Date: 1/6/2003 9:14 AM
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http://www.nytimes.com/2003/01/06/politics/06BUDG.html

The Shrubbery is being more and more blatant that its intent is to get people to buy stocks and drive up stock prices, even though there is no model by which cutting taxes on dividends for individual (mostly wealthy) tax payers will lead to increased corporate earnings that might enable companies to pay higher dividends. In other words, the idea is to create another unsustainable stock bubble.

Given that Shrub partied through business school, drove all his business ventures (gifted him by Daddy's connections) into the ground, and has never had to balance a check book in his life, I suspect he actually believes the libertarian mystics who think stock prices can go up and up, with nobody buying nutin' but stocks.
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Author: reikiman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5968 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 10:25 AM
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Given that Shrub partied through business school, drove all his business ventures (gifted him by Daddy's connections) into the ground, and has never had to balance a check book in his life, I suspect he actually believes the libertarian mystics who think stock prices can go up and up, with nobody buying nutin' but stocks.

Now, be fair ... remember the example his father gave him as a business man. All of GHWBush's businesses, also gifted to him by his daddy's connections (Preston Bush worked for Harriman during the 30's, and Herbert Walker was a wall street tycoon, and he went on to become a Senator from Connecticut), also failed.

So with that kind of example, as a young child growing up, what else could he do with his life but follow in his fathers footsteps.

- David


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Author: hondodog Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5969 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 11:56 AM
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The Shrubbery is being more and more blatant that its intent is to get people to buy stocks and drive up stock prices, even though there is no model by which cutting taxes on dividends for individual (mostly wealthy) tax payers will lead to increased corporate earnings that might enable companies to pay higher dividends. In other words, the idea is to create another unsustainable stock bubble.

perhaps you give him too little credit...perhaps he understands that double taxation is wrong....and no, i'm neither rich nor hate the rich. i earn less than $40,000 a year, and i only receive about $100 a year in dividends from my investments, although that number will grow with my investments/savings.

in contrast to your premise that the measure will create a stock bubble, i believe it will not, it will however, reward stolid dependable slower growth companies, whose dividend stocks have been discounted in favor of high flying growth stocks promising the moon. This measure is more likley to balance the market from the artificial forces of growth at any cost, including integrity.

by the way, your bias is showing....

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5971 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 12:27 PM
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perhaps you give him too little credit...perhaps he understands that double taxation is wrong

I'd love to hear a convincing explanation of *why* this double-taxation is "wrong." To date, nobody has ever been able to provide me with one. People just say things like -- "the money was taxed once; being forced to pay taxes again is wrong."

Would it be "wrong" if the tax rate were simply doubled (or whatever multiple is required) up-front so that the money is only taxed once but the same tax revenues are collected?

You are certainly welcome to believe that eliminating the tax on dividends is a good thing. But I cannot see one way being "right" and the other "wrong"...

ACME

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Author: Juggernaut8 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5972 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 12:49 PM
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The Shrubbery is being more and more blatant that its intent is to get people to buy stocks and drive up stock prices, even though there is no model by which cutting taxes on dividends for individual (mostly wealthy) tax payers will lead to increased corporate earnings that might enable companies to pay higher dividends. In other words, the idea is to create another unsustainable stock bubble.

Given that Shrub partied through business school, drove all his business ventures (gifted him by Daddy's connections) into the ground, and has never had to balance a check book in his life, I suspect he actually believes the libertarian mystics who think stock prices can go up and up, with nobody buying nutin' but stocks.


Loki-

Although I disagree with many things the current administration is doing, this is not one of them. A while back I wrote a post(#70767)on the BRK board giving several reasons why I think the initiative is a good idea. I've pasted them below. (note on the study mentioned in point #1 - someone has pointed out that the time period used in this study is somewhat suspect, in other periods the relationship noted does not hold)



I think the best overall result would be in cutting the dividend tax to investors, for several resaons:

1. There has been research published recently that companies that distribute more earnings as dividends do better in the long run. This makes some sense, as money paid out as dividends can't be used for multi-million dollar headquarters facilities, corporate jets, harebrained projects, empire building and the like.

2. A focus on dividends may keep prices more in line with economic reality.

3. A focus on dividends might inspire more shareholder activism, as in: Why didn't you pay a higher dividend rather than making a personal loan so the CEO could build a third mansion? This also would be similar to WEB's capital discipline with subsidiaries - if you don't need it for operations and can't earn a high return on it send it to Omaha.

4. The focus on dividends might increase individual investment - maybe the roofer could be getting tax-free dividends too and not have to work as long. The labor v. idle rich argument is always brought up in the dividend taxation discussion, but to me seems like an emotional distraction rather than a valid argument. Someone with a lot of money is still not going to have to work, whether the dividends are taxed or not. Maybe the focus should be on getting as much of the working population as possible to the point where they can share in economic growth and development by getting some income from stocks and bonds.

5. The concerns about the municipal bond markets may be valid, but things such as tax credits and other incentives could be added to make them more competitive. Also they would still be very solid credit-wise, which would tend to keep them competitive no matter what.

-J8


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Author: iamdb Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5973 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 2:26 PM
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Your bias is showing as well hondodog. Your expectations that cutting taxes on dividends will lead to the slow and solid growth of sound corporations seems based of political doctrine -- I supposean extension of the trickle-down idea.

But at $40K a year, not much seems to have trickled your way. OTOH, if that $40 K is from a prudent 4% SWR draw on the first installment of the family wealth . . . , then I can see where you're comming from.

db

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5974 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 3:39 PM
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I make no secret of my views: I believe in rewarding genuine achievement and in the hard-headed principles of investment capitalism: encouraging innovation, growth, and entrepreneurship by reasonable and sufficient financial rewards to innovators, entrepreneurs, and those who provide them with working capital. However, I know the differences between hard-headed investment capitalism and either wishful thinking or Crony Capitalism, that rigs the reward system to favor connections and back-slapping over achievement.

I also understand supply and demand, and you can't keep throwing money at the supply side and hope it gets put to good use, while relying on increasing consumer debt for the demand side.

We have learned over the last few years that you can't throw money at the stock market, that stock market returns must be tied to corporate profits, and anything beyond that is just a pyramid scheme. Even a long-term bull like Jeremy Siegal understands this. Apparently Shrub and crowd do not. They are not talking about eliminating taxes on dividends in order to increase corporate profits. They are furthering the tax bias in favor of buying stocks, instead of bonds or cash, which was a major factor in the inflated stock market in the first place. The reason is to get people to buy stocks, which without increased profits, only leads to inflated stock prices. (Maybe, they hope that if people feel "wealthier" because of phantom wealth, that will jump start the economy, but they ain't saying.)

I think eliminating "double taxation" may well be a good thing, although lost revenues would have to be made up by tax increases on those who gained the most from this elimination. But this should be done at the corporate level, as with REITs, encouraging companies to return unneeded capital to investors, instead of wasting it, without treating taxes on stock dividends differently than on bonds and cash—if the increased earnings from this elimination of double taxation justifies higher stock prices, that is legitimate, and if it eliminates a bias towards stocks that retain dividends, that makes sense. Of course, any encouragement of returning capital to shareholders is an admission that not all capital can be turned into meaniingful working capital, which is to say that extreme supply-side ideals are wrong, which also means the bias towards cutting taxes for the rich with the claim that they will invest, not spend, and that this is good for capitalism is also nonsense.

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Author: ShadoRydr One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5975 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 3:48 PM
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I'd love to hear a convincing explanation of *why* this double-taxation is "wrong." To date, nobody has ever been able to provide me with one

Perhaps its simply, because it's "my" money, not the governments, and I think it's wrong that the government confiscate it from me twice. In most instances, I think it's wrong that they take it from me even once.



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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5976 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:09 PM
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Ahm the BRK Board. do you think that not taxing dividends will induce Warren Buffet to pay dividends on the BRK stocks?

brucedoe

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5977 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:14 PM
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Perhaps its simply, because it's "my" money, not the governments, and I think it's wrong that the government confiscate it from me twice. In most instances, I think it's wrong that they take it from me even once.

Nope. Not the least bit convincing. This is an argument as to why you don't like the taxation of dividends. Your statement provides absolutely no argument about why the taxation of dividends is wrong.

Also, your income is directly tied to the economic forces at play. Change the forces, and your income could well go down -- you might not actually *see* a decrease in numerical income, but your real income might be impacted differently due to inflation, or your raises might be smaller than they would have been otherwise, or a number of other possible changes. Regardless, you cannot divorce "your money" and "taxes" in the way you state.

The same forces are at work for corporations. Sure eliminating certain taxes would mean more profits initially. But it is very possible these increased profits would result in increased competition which could drive prices down and decrease profits back to the same (or lower) level. This could then lead to a net decrease in salary among workers in the industry. In that scenario, eliminating the taxes provided no benefit to the industry and may actually hurt certain companies as they now have increased competition.

Looking one step ahead does not provide a good indicator of the impact of economic decisions. In fact, they can provide quite a terrible indicator as the long-term impact might be drastically different from the short-term impact...

A decent analogy would be chess -- sure you can play by looking just at the direct result of your possible moves, but that is a strategy for losing. The more moves you are able to "look ahead," the better you will do.

ACME
(PS -- Since the money only exists due to the government, a decent argument could be made that it is *ALL* the government's money.)

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Author: Juggernaut8 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5978 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:15 PM
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I think eliminating "double taxation" may well be a good thing, although lost revenues would have to be made up by tax increases on those who gained the most from this elimination. But this should be done at the corporate level, as with REITs, encouraging companies to return unneeded capital to investors, instead of wasting it, without treating taxes on stock dividends differently than on bonds and cash—if the increased earnings from this elimination of double taxation justifies higher stock prices, that is legitimate, and if it eliminates a bias towards stocks that retain dividends, that makes sense.

A structure more like REITs might make sense. Or just exempting both interest and dividend taxation, although that may result in too much lost revenue. Maybe eliminating tax on interest and dividend income on the bottom tax brackets? This might engourage saving and investing, along with protecting retirees whose nest egg isn't sufficient to give them a high income - that sounds good. Also would give more of a balance between asset classes. That would never happen because the lower tax brackets don't have enough lobbying power, but it sounds like a good idea.

-J8



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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5979 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:16 PM
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You have to remember that politicians have mastered the art of getting votes from the people they intent to fleece. Please note that my statement is bipartisan, except that the Democrats tend to fleece the people that can afford it. Curiously, the wealthy seem to do even better during Democrat administrations than Republican because the economy is better. Lest anyone think that my bias is showing, I voted for John Warner for Senator in Virginia during his last election and Tom Davis in the most recent election. Both are Republicans from Virginia. I also voted for Gore because he was one of the most impressive people I have ever met. Incidentally, I like divided government and gridlock.

brucedoe

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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5980 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:19 PM
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Your point is well taken. The current problem is too much supply and has been for quite a few years. It led to the Asian Contagion, for example.

brucedoe

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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5981 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:26 PM
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Attaboy ShadoRydr. Let's shut down the military, the NIH, the Social Security Administration and so many others. Think of all the reduction is taxes you would get. As for me, I'll gladly pay my taxes for I believe I get services rendered. And I'd also like to see a balanced budget. This used to be a conservative issue when I was young. How it became a liberal issue isbecause the greed of the wealthy seems to know no bounds (with some exceptions). In Little Caesar, Humphrey Bogart says to Eward G. Robinson, "I know what you want." Robinson replies "Whaaat?" "(HB)More, that's what you want, more." "(EGR)That's right, I want more." Seems like I said this on this board before.

brucedoe

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5982 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:28 PM
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>> Your statement provides absolutely no argument about why the taxation of dividends is wrong. <<

The taxation of dividends is not wrong.

The double taxation of dividends -- taxing the same dollar of earnings twice even though, in some sense, it was never spent or transferred (since the shareholder owns the company in the proportion in which they received the dividend) -- is wrong.

All IMO, naturally. I believe a dollar of dividend income should be treated just like any other dollar of income. Right now the proposals to eliminate double taxation -- the proposals which some have demagogued into a class warfare issue -- are NOT to make dividends "tax preferred", but rather to eliminate their punitive treatment with something more akin to other income.

#29


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Author: Juggernaut8 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5984 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:47 PM
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bruce-

I didn't read the tag and only responded by e-mail. If you want just respond here.

-J8

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5985 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:54 PM
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The double taxation of dividends -- taxing the same dollar of earnings twice even though, in some sense, it was never spent or transferred (since the shareholder owns the company in the proportion in which they received the dividend) -- is wrong.

The issue of taxing the same dollar twice could easily be eliminated...without a loss of revenues...by increasing the tax rate for the first round of taxes.

Would this change anything fundamentally? I don't think so. (I understand that companies that do not currently pay dividends would have to pay more taxes, but that is a hollow argument in my mind as you eventually get taxed on the value appreciation of the stock. And this tax is no different than the "death tax" IMO as people against the death tax argue that taxes were paid when the money was earned and then again at death...here the company paid taxes as it was generating the earnings and then the person selling stock is taxed again on the increased value of the company...something that was directly tied to the earnings generated.)

Would this be "wrong?" You tell me.

It seems to me that since nothing fundamental changed, they are either both wrong or neither is wrong. If they are both wrong, then it seems that you must believe taxes as a whole are wrong. And if you believe taxes as a whole are wrong, how do you get the services governments provide?

I am not against the elimination of tax on dividends...but I also think eliminating this tax is far more bluster than benefit.

ACME

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Author: hackshark Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5986 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 4:54 PM
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So with that kind of example, as a young child growing up, what else could he do with his life but follow in his fathers footsteps.

Let us not forget Brother Neil either, among the directors of the legendary Silverado Savings and Loan (legendary only for its failure).

That and other interesting trivia:
http://www.romm.org/bushquiz.html


I wonder what Neil is up to these days.

-hack

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Author: Juggernaut8 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5988 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 5:00 PM
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(PS -- Since the money only exists due to the government, a decent argument could be made that it is *ALL* the government's money.)

Wrong, Comrade AcmeFool - in a just capitalist society that fairly protects property rights any money you earn is yours, provided it was earned lawfully. (that is if everything is operating properly and the system isn't corrupted) The government exists for the people, not the other way around.

-J8

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Author: hackshark Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5989 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 5:03 PM
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This also would be similar to WEB's capital discipline with subsidiaries - if you don't need it for operations and can't earn a high return on it send it to Omaha.

An interesting reference to WEB, considering that BRK doesn't pay dividends. They might send the profits to Omaha, but they sure don't send it to shareholders/owners.

-hack

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Author: hackshark Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5990 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 5:09 PM
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because it's "my" money, not the governments,

This is a fallacy. If you really think it is your money, then just stop paying your income taxes altogether.

You pay for the priveledge of living in this country. How much of "your" money would you have had if you were making tennis shoes in China for $0.50 an hour?

Talking about taxes is really just a zero sum game. It costs a certain amount to operate the government. Everyone wants it to work out so that they someone personally pay less than others. Everyone thinks it's their money and the government has no claim to it, yet when there are potholes on the interstate highway or public schools have 50 kids in a classroom, everyone expects the government to fix it yet still retain the right to complain about the cost and their unfair share of taxes.

I find it interesting.

-hack

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Author: Juggernaut8 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5991 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 5:09 PM
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An interesting reference to WEB, considering that BRK doesn't pay dividends. They might send the profits to Omaha, but they sure don't send it to shareholders/owners.

Sorry - forgot that post had material in it that people on this board may not be familiar with. BRK is a conglomerate - the subsidiaries have to have a very profitable use for any surplus earnings or they must be returned to Omaha. (BRK HQ) Now with the example you cite - yes, BRK doesn't pay a dividend. But the retained earnings are being managed by the best investor in history - do you really want him to give them to you to manage in a tax-generating transaction?

-J8


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Author: Juggernaut8 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5992 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 5:13 PM
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Wrong, Comrade AcmeFool - in a just capitalist society that fairly protects property rights any money you earn is yours, provided it was earned lawfully. (that is if everything is operating properly and the system isn't corrupted) The government exists for the people, not the other way around.

Just to clarify - this statement is not saying that one should not pay(justly enacted) taxes. It's a statement disagreeing with the mentality that "all money is the government's". The "all capital is the state's(gov't)" theory is a communist one.

-J8


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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5993 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 5:38 PM
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"A structure more like REITs might make sense. Or just exempting both interest and dividend taxation, although that may result in too much lost revenue. Maybe eliminating tax on interest and dividend income on the bottom tax brackets? This might engourage saving and investing, along with protecting retirees whose nest egg isn't sufficient to give them a high income - that sounds good. Also would give more of a balance between asset classes."

The supply-side extremists believe all taxes should be consumption taxes (or at least they want to eliminate capital gains taxes and increase consumptions taxes). Taken seriously, the result would be a dampening of demand with a pumping of supply, i.e., squeezing profits to near zero. By eliminating the (small) interest earned exemption, eliminating sales tax deduction, and eliminating the interest paid (except mortgage) deduction, while decreasing taxes on capital gains, as well as by shifting the distribution of wealth to the top, there has been a strong push toward the overabundance of supply. Potentially, tax deferred accounts are a counter-force, if people stuck with cash and bonds in these accounts, helping lower interest rates, but in reality, stocks have seemed the way to go even in tax deferred accounts.

As it is now, someone putting money into a money market to save for a downpayment, a car, a computer, or a home improvement, has to pay taxes at the marginal rate, harming the demand side. The bias in the tax system already says: buy stocks, don't save to spend, and don't spend. The only reason things didn't fall apart a lot sooner was people spent anyway, because of their illusion of wealth and their inability to keep it in their pants (their credit card, I mean).

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Author: DanielDauenhauer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5994 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 5:47 PM
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AcmeFool,

I'd love to hear a convincing explanation of *why* this double-taxation is "wrong." To date, nobody has ever been able to provide me with one.

I'd love to hear a convincing explanation of *why* the owners of a company should be taxed at a higher rate than employees with the same annual income. As far as I can tell, it's just irrational and unfair.

It's like this: companies (and independent contractors) are only taxed on their profits, since it would be really evil to send a tax bill to someone who can't even get more gross revenue than his costs of doing business. Since salaries and whatnot are counted as a cost of doing business (so they're deducted from taxable income at the corporate level), they have to be taxed at the individual level, which incidentally allows for some class warfare over the progressivity of taxation. However, if a company wants to send some of its profits to its owners, that money will be taxed at the same individual rate as if it were a salary -- and then taxed again another 30% to 35% (I don't know corporate tax rates, but the ones I see quoted most often are in that range), since it's not currently deductable from taxable income at the corporate level.

Let's be modest and say that you're in a 20% tax bracket, and that the company of which you are part owner pays 30% of its profits in taxes. Uncle Sam will let you keep (80% * 70%) = 56% of the money that your company passes on to you -- but it'll let any of your employees who are in the same tax bracket keep 80% of the money that your company passes on to them. Can you really look me in the eye and say with a straight face that it sounds fair to you? Because I just don't buy it. Seems to me that for a nation whose wealth was built by capitalism, we are remarkably anti-capitalist.

Juggernaut8,

A while back I wrote a post(#70767)on the BRK board giving several reasons why I think the initiative is a good idea. I've pasted them below.

I gave several reasons on the REIT board why I think that dividends should be deducted from taxable income at the corporate level and taxed at the individual level, just like wages. An excerpt:

I'm one of those who have been expressing a preference for eliminating the double taxation of dividends at the corporate level instead of the individual level for several reasons. One of them is that doing it at the individual level seems to me to be a cynical way of trying to boost equity prices (at the expense of tax receipts) without actually encouraging companies to send more of their hoarded cash to their owners, since from management's perspective, dividends would still appear to be taxed. Another is that doing it at the individual level seems to me to be a cynical way of reducing the progressivity of taxation, on two counts: everyone would be taxed the same (at the corporate level) on a particular company's dividends, and middle-income shareholders probably hold most of their stock in tax-advantaged retirement accounts already. The difficulty of comparing after-tax returns of different securities, although not insignificant, is rather low on my list.

http://boards.fool.com/Message.asp?mid=18341495&sort=whole

Cheers,
Daniel Dauenhauer

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5995 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 6:20 PM
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>> As it is now, someone putting money into a money market to save for a downpayment, a car, a computer, or a home improvement, has to pay taxes at the marginal rate <<

Which, when you keep in mind that current pathetic money market rates are considerably lower than the inflation rate, is really adding insult to injury.

#29


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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5996 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 6:54 PM
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Wrong, Comrade AcmeFool - in a just capitalist society that fairly protects property rights any money you earn is yours, provided it was earned lawfully. (that is if everything is operating properly and the system isn't corrupted) The government exists for the people, not the other way around.

While I agree with you -- I said the argument could be made, not that it was my argument -- there is one detail that throws things off...the possibility, albeit slim in the forseable future, that our government would fail and we would be "taken over" by some other entity. Should said entity decide the money we now have is worthless (think Confederate money), it would no longer matter who "owns" the money. Our currency only has value because: (1) the US government guarantees its value; and (2) other people -- here and abroad -- recognize this guarantee as meaningful. This is actually what I was hinting at in my statement...

ACME

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5997 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 7:07 PM
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Daniel,

I'd love to hear a convincing explanation of *why* the owners of a company should be taxed at a higher rate than employees with the same annual income. As far as I can tell, it's just irrational and unfair.

I'm not sure if this is an attack at my position or just a request for an explanation about a somewhat related issue. I do not ever recall saying this was fair. I do not even recall thinking about this...though it is the type of issue my mind usually wanders to, so at the least I thank you for giving me a new issue to ponder.

That said, eliminating the "double taxation of dividends" will not serve to equalize the tax rates between ownership and employee-ship. And the only way to truly equalize them would be to have a tax system where the success of your company, rather than the amount of money you earn, determines your tax rate. I think that would be a major nightmare to implement and it would be almost impossible to police.

And my initial thinking is...there is actually nothing wrong with different tax rates for the two issues. It can simply be considered one of the prices of doing business.

Seems to me that for a nation whose wealth was built by capitalism, we are remarkably anti-capitalist.

I don't feel this way at all. Taxes are not anti-capitalist IMO. And different tax rates for different "types" of money is not anti-capitalist either. These are prices of government...be it capitalist, communist, facist, or dictatorial. Without taxes, you have no government. Without government, you have anarchy.

Thanks again for a new topic to ponder.

ACME

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Author: Adenovir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5998 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 7:43 PM
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It's like this: companies (and independent contractors) are only taxed on their profits, since it would be really evil to send a tax bill to someone who can't even get more gross revenue than his costs of doing business.

The city of Philadelphia has a gross receipts tax, and businesses here agree with you. The problem is that the city can't decide whether to cut the gross receipts tax or the (nearly) 4% city wage tax. Do any other cities have a Gross Receipts Tax?

Adenovir

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Author: DanielDauenhauer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5999 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 10:16 PM
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I'm not sure if this is an attack at my position or just a request for an explanation about a somewhat related issue.

It was turning the question back at you. The issues aren't just somewhat related; they're identical.

That said, eliminating the "double taxation of dividends" will not serve to equalize the tax rates between ownership and employee-ship.

If the way it's eliminated is by making dividends deductible from taxable corporate income, then yes, it will.

And different tax rates for different "types" of money is not anti-capitalist either.

If the capitalist is taxed at a higher rate on the same amount of annual income than the laborer, then yes, it is.

DD

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Author: DanielDauenhauer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6000 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/6/2003 10:52 PM
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"I'm not sure if this is an attack at my position or just a request for an explanation about a somewhat related issue."

It was turning the question back at you. The issues aren't just somewhat related; they're identical.


This statement of mine could perhaps use some clarification. You see, our tax system is actively managed in order to discourage things that are technically legal but harmful to society in some way. Currently, that small, select list of Very Bad Things that are taxed at higher-than-normal rates includes stuff like cigarettes, beer, gasoline...and corporate dividends. It's ridiculous on the face of it, so the question isn't, "Where are the good arguments that dividends shouldn't be taxed at a higher rate than other forms of income, such as wages or capital gains?" but rather, "Where are the good arguments that dividends should be taxed at a higher rate?"

Cheers,
Daniel Dauenhauer

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Author: ShadoRydr One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6001 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/7/2003 5:47 AM
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Attaboy ShadoRydr. Let's shut down the military, the NIH, the Social Security Administration and so many others. Think of all the reduction is taxes you would get. As for me, I'll gladly pay my taxes for I believe I get services rendered.

Ah, you misconstrue my position, nowhere did I say I wish to pay no taxes. However, unlike you, for the Federal Taxes I pay, I don't feel I receive services in proportion to the amount paid. Social Security? Sure, there's a great deal for me. Pay in all my working life, receive less back than I pay in, and at a paultry rate of return.

At any rate, if I recall my history correctly, where in our constitution does it authorize the federal government to be responsible for these things? I seem to recall, national defense, interestate commerce, and foreign affairs.. I don't recall anything about the ability to levy taxes on practically the very air I breath.

In Little Caesar, Humphrey Bogart says to Eward G. Robinson, "I know what you want." Robinson replies "Whaaat?" "(HB)More, that's what you want, more." "(EGR)That's right, I want more."

This sounds more like our Federal Government, than anything I said.

Also, I think I am getting a little off topic, and that's my fault for my rather appoplectic original response. I just had to send in a check to the IRS for estimated taxes on a lump sum distribution I received. I think, that if all taxpayers had to pay via sending in a check yearly, instead of having the amounts withheld, we'd see more accountability from our government as people actually realized the amount the are paying.

P.S. The greed of the wealthy comment? I made $41,000.00 last year. Move over Bill Gates.






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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6004 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/7/2003 8:50 AM
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It was turning the question back at you. The issues aren't just somewhat related; they're identical.

No...they most definitely ARE NOT identical. The so-called double taxation of dividends has absolutely nothing to do with differing tax rates for ownership versus employeeship. Even eliminating one layer of the taxes (without increasing the other layer) would not change the differing tax rates. And we essentially cannot have each employee taxed at the rate of his company without creating new nightmares (what if someone works for two companies, each in a different tax rate? are you going to make their taxes that much more complicated and expect to both receive the right amount AND police things?).

If the way it's eliminated is by making dividends deductible from taxable corporate income, then yes, it will.

No...it will not. The tax structures are NOT the same for corporations and individuals.

If the capitalist is taxed at a higher rate on the same amount of annual income than the laborer, then yes, it is.

The laborer is still part of the capitalist economy. Without the employer, there is no employee/laborer. Without employees, there is no employer.

A capitalist invests money with the intent of making money. S/he does this with full knowledge of the tax rates. S/he does this knowing the tax rate is different for the corporation than it is for his/her employees. S/he does this with the intent of making more money than s/he would by simply working as an employee. There is nothing (newly) revolutionary about this. If the capitalist thinks the corporate tax rate is so high that it favors the employees, s/he can simply work as an employee rather than investing capital in the business.

Part of the capitalist economy is giving people the choice of whether they want to be the employer (by investing money in a business) or simply and employee. To say it is anti-capitalist for there to be different tax-rates for these two *substantially different* approaches to making money is simply wrong in my opinion.

ACME

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6005 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/7/2003 8:55 AM
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This statement of mine could perhaps use some clarification. You see, our tax system is actively managed in order to discourage things that are technically legal but harmful to society in some way. Currently, that small, select list of Very Bad Things that are taxed at higher-than-normal rates includes stuff like cigarettes, beer, gasoline...and corporate dividends. It's ridiculous on the face of it, so the question isn't, "Where are the good arguments that dividends shouldn't be taxed at a higher rate than other forms of income, such as wages or capital gains?" but rather, "Where are the good arguments that dividends should be taxed at a higher rate?"

No. Your question is "where are the good arguments that dividends should be taxed at a higher rate?" (This is your new question anyway as it is not your original question despite your belief that they are the same issue.)

That is not MY question. And *ALL* taxes on corporations are different from taxes on individuals. So you cannot simply pull dividends out and act like they are being taxed differently and everything else is the same. If that were the case, our tax rate for a given year would be solely dependent on the success of the company we work for...

ACME

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Author: hondodog Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6048 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/7/2003 8:03 PM
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I'd love to hear a convincing explanation of *why* this double-taxation is "wrong." To date, nobody has ever been able to provide me with one. People just say things like -- "the money was taxed once; being forced to pay taxes again is wrong."

Would it be "wrong" if the tax rate were simply doubled (or whatever multiple is required) up-front so that the money is only taxed once but the same tax revenues are collected?


it would be more honest, akin to the "truth in Lending" Laws imposed by the government to protect consumers....consider it a "truth in taxing" issue....picture the old candy ad on tv: two kids are "sharing" a candy bar, the little kid objects to getting the smaller piece, at which point the kid splitting the bar takes a bite of the larger piece, holds them up, shows them to be even, and the little kid is happy...now, come back and get another bite....

to be honest, i'm of the opinion that everyone in this country is being Taxed too much, and that the two parties are using class warfare rhetoric to avoid the issue of spending...i would rather start the hard painful discussions of what is proper spending...and not just the simplistic "military/social programs", but the porkbelly items sutured onto critical bills in backroom deals between the two parties...but that is way off topic here....

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Author: hondodog Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6049 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/7/2003 8:46 PM
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Your bias is showing as well hondodog. Your expectations that cutting taxes on dividends will lead to the slow and solid growth of sound corporations seems based of political doctrine -- I supposean extension of the trickle-down idea.
discussion i have read in the past year through many sources, here on the fool, other websites, newspapers, and magazines have lead me to believe that a lot of the manipulation of "earnings" reports by company executives and "analysts" was created by nearsighted greed, and the imperative to push up growth (rather, the appearance of growth) to increase share price (and the executives' "stock options").

the near-sighted growth this quarter mentality did not effect many of the older, less "exciting" companies...those companies plodded along, paying dividends. those stocks became punished by the "dividend Penalty" since capital gains are "tax-free" to the investor, until sold, while "dividends" are/were taxed always...

Perhaps it is simplistic of me to believe that adjusting the dividend tax law will reawaken investor interest in the less risky, more established businesses...perhaps the last three years have already done so....i do tend to side with the ant instead of the grasshopper on most financial decisions, but that is philosophy, not doctrine.

But at $40K a year, not much seems to have trickled your way. OTOH, if that $40 K is from a prudent 4% SWR draw on the first installment of the family wealth . . . , then I can see where you're comming from.
i'm comfortable with my income and lifestyle, it affords me the luxury of doing what i want to do, the opportunity to own a house in the city, drive a used car, and spend the difference on investments and savings. if not i have the ability to improve my skills and market myself into a higher lifestyle...why should it matter to the tax dividend discussion whether i have earned my money or inherited it? if your savings outlive you and you have decided to leave the extra to your family, a friend, or a charity, will you then despise them for receiving it? why is it illegal or immoral or unjust not to want to improve the opportunities for the next generation? isn't it human nature to work for a better life for your children?

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6050 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/7/2003 9:10 PM
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it would be more honest, akin to the "truth in Lending" Laws imposed by the government to protect consumers....consider it a "truth in taxing" issue....

I agree 100%.

to be honest, i'm of the opinion that everyone in this country is being Taxed too much, and that the two parties are using class warfare rhetoric to avoid the issue of spending...i would rather start the hard painful discussions of what is proper spending...and not just the simplistic "military/social programs", but the porkbelly items sutured onto critical bills in backroom deals between the two parties...but that is way off topic here....

A perfectly valid viewpoint. I don't entirely agree, but I can certainly understand where you are coming from. Naturally, I would love my taxes to be lower...but I'm not sure what I would have the government cut. Of course, I think there should be mandated balanced budgets...so either tax revenues need to go up (not necessarily through higher taxes), or spending has to come down...

ACME

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Author: DanielDauenhauer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6054 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/8/2003 5:39 AM
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"If the way it's eliminated is by making dividends deductible from taxable corporate income, then yes, it will."

No...it will not. The tax structures are NOT the same for corporations and individuals.


I think that you're misunderstanding me. I'm specifically disagreeing with Bush's proposal. I'm saying that although double taxation should be eliminated, it should be eliminated at the other end: dividends should be deductible from taxable corporate income just like wages are (just like how dividends are treated for REITs), and should continue to be taxed at the individual level. Since they would both be taxed at the individual level (and only at the individual level) under my proposal, dividends and wages would be taxed at the same rate for the same income.

To anticipate a more reasonable objection, although dividends aren't subject to Social Security taxes and whatnot, they also aren't used in benefits calculations; and if the benefits of entitlement programs aren't worth the cost of their taxes, then that's an argument for scrapping those programs, not for taxing other forms of income for them too.

DD

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6060 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/8/2003 9:42 AM
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Daniel,

I understand your view...and I feel the same way if dividend taxation is going to be reduced. The individual is the one that should pay the taxes.

However, the statement you made that I am disagreeing with is the one that eliminating the corporate tax on dividends will make corporate and individual taxes the same. The tax structures will still be different for the two...

In any case, I think we agree on far more than we disagree on.

ACME

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Author: DanielDauenhauer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6065 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/8/2003 7:05 PM
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However, the statement you made that I am disagreeing with is the one that eliminating the corporate tax on dividends will make corporate and individual taxes the same. The tax structures will still be different for the two...

If I said that, I didn't mean to. I meant that eliminating the corporate tax on dividends would make dividend and wage taxes the same (except for special stuff like Social Security, which is a separate issue).

Whew! I'm glad we got that resolved. :)

DD

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6066 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/8/2003 7:30 PM
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If I said that, I didn't mean to.

Well...ya know...as nearly perfect as I am (sic), it is possible you said it right and I just misunderstood you... :^)

ACME

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Author: GREYFOX Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6114 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/12/2003 4:31 PM
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"I'd love to hear a convincing explanation of *why* this double-taxation is "wrong." To date, nobody has ever been able to provide me with one. People just say things like -- "the money was taxed once; being forced to pay taxes again is wrong."
Permit me to rey It is WRONG because it is BAD economic policy which has undesireable results in that it creates an unfortunate incentive for Corporations to hoard money that would be better distributed and also causes Corporations to fund expansion with more debt and less equity then they would if the tax code was neutral rather then favoring debt.The proper solution would be to make dividends deductble to the Corporation.

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Author: GREYFOX Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6115 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/12/2003 4:41 PM
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Hack:
"Don't tax you
Don't tax Me
Tax the man behind the tree"

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6118 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/12/2003 6:33 PM
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Permit me to rey It is WRONG because it is BAD economic policy which has undesireable results in that it creates an unfortunate incentive for Corporations to hoard money that would be better distributed and also causes Corporations to fund expansion with more debt and less equity then they would if the tax code was neutral rather then favoring debt.The proper solution would be to make dividends deductble to the Corporation.


Unfortunately, this is entirely opinion. You believe the economic policy is bad...there are no economic laws to back this opinion...there is no way to proove that removing this tax will allow companies to fund expansion with less debt.

My request was loaded -- I do not believe anyone *can* provide an explanation I will accept as convincing me that the policy is "wrong." The word "wrong" is the key...how do you define right and wrong in this type of context. There are, howeverm lots of explanations that I accept for why removing the tax from the corporate level might be good for the nation...nobody knows for sure.

ACME

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Author: Juggernaut8 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6119 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/12/2003 6:52 PM
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ACME-

What you quote was an opinion. However, let me list some points that illustrate why some people may hold that opinion:

1. Many firms have stopped paying dividends or increasing the payout of current dividends. When asked why or pressured to pay dividends the managements often say - "the double taxation doesn't make it a sensible thing to do" - which is true, since .65 is less than a $1.

2. Several long term studies of stock market returns have shown that dividends are a major source of total return. They appear insignificant, especially today with the low payout rates, but they still are important and they add up over time.

3. Managements are notorious for squandering corporate funds - private jets, excessive travel budgets, "training/meetings" in exotic locales, palatial headquarters, excessive bonuses, excessive salaries, corporate apartments, personal loans, excessive retirement packages, etc, etc, etc.

So taking these three factors into account anything that would encourage management to pay out dividends rather than squandering retained earnings would seem to help the problem. It's the shareholders money anyway, so finding a way to encourage management to return it to them rather than squandering it would seem to be a step in the right direction. What are your arguments against this?

-J8

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6120 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/12/2003 9:00 PM
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So taking these three factors into account anything that would encourage management to pay out dividends rather than squandering retained earnings would seem to help the problem.

You are applying his opinions, but to a different end-goal...his reason for the opinion was that he believes corporations are more likely to invest in expansion if dividends are not double taxed -- a view that does not make a lot of sense to me. Your position here is that higher dividends means less likelihood of corporate excess -- a view I definitely agree with.

It's the shareholders money anyway, so finding a way to encourage management to return it to them rather than squandering it would seem to be a step in the right direction.

I do not agree. In some cases, the best use of the money is to return it as dividends. In other cases, the best use is pure expansion.

What are your arguments against this?

My last statement aside...when did I ever claim that eliminating the so-called double-taxation of dividends was a bad thing? When have I argued against the elimination of one of the two layers of the tax? I simply said nobody has ever convinced me that this double-taxation is a BAD thing.

If one of the layers is eliminated, tax revenues will fall. As the elder Bush once said, supply-side economics is voodoo economics. It did not work under Reagan, and I would be absolutely shocked if it works now. I have no problem with cutting taxes if it is at the expense of excess spending by our government. But cutting taxes with the belief that *eventually* the economic output will grow so much that we outgrow our deficits and have huge government surplusses...well look where our debt went the last time we entered into such a policy.

So summarizing -- I don't think the double-taxation is a *bad* thing or a good thing, just a thing. I also think the belief that cutting our governement's revenue base without cutting its spending level is just going to lead to a huge financial burden on us in the years to come.

ACME
(Oh...and Dubya...we don't need wetlands in this country either. Just go ahead and develop all of them over the next 2 years...)

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6122 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/12/2003 11:23 PM
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I think there are a few basic issues:

1) Does the current approach to taxing dividends cause companies to waste money that might otherwise be better returned to shareholders (even though supply side theory presumes investment capital can always be put to good use)?

2) Would a tax structure that encourages companies to pay dividends then lead them to pay dividends to an extent that undermines their ability to have enough working capital to put to good use?

3) Is there an alternative (which to some extent the actual proposed plan is working toward) that encourages companies to pay dividends when capital cannot be put to good use and to retain earnings when capital can be put to good use? (I would suggest that this depends more on strong corporate leadership that focuses on the long term, which John Bogle is fighting for, than on anything in the tax code.)

4) Given the budget deficit, even if a strong case can be made for eliminating double taxation in principle, can the country afford it now, and even if it does improve the use of working capital, with real growth effects, shouldn't this be balanced with other taxes on those receiving the most benefit to keep the deficit manageable?

I'd like to share some numbers I've been playing with, comparing eliminating double taxation at the corporate versus individual levels. These are scenarios, and I'm not sure if they are valid, especially in thinking about capital gains taxes. But it looks to me like the impact on taxes is much greater with those companies currently giving dividends, especially with elimination of taxes at the individual level, than with companies (like Microsoft) that might be encouraged (in Saddam's torture chambers, for Microsoft) to give dividends down the road.

Presume $3 in profits, 33% taxes at either corporate of individual level, and 100% annual turnover of stock for long term capital gains (short term trading is treated as noise and zero sum). This treats the retained earnings as if returned to investors, although retained earning actually become working capital, staying ahead of the return on investment wheel.

1) Company that currently retains all dividends

a) Current situation: $3 billion earnings, zero dividends, $1 billion corporate taxes, $2 billion retained. (Company gets $2 billion, Government $1 billion, Shareholders zero) From capital gains, Shareholders get $1.6 billion long term capital gains, Government $.4 billion long term capital gains. Total: Shareholders $1.6 billion, Government $1.4 billion.

b) Eliminating dividends at corporate level, thus encouraging company to return half to investors: $3 billion earnings, $1.5 billion dividends, $.5 billion corporate taxes, $.5 billion individual taxes, $1 billion retained. (Company $1 billion, Government $1 billion, Shareholders $1 billion). Shareholders get $.8 billion long term capital gains, Government $.2 billion long term capital gains. Total: Shareholders $1.8 billion, Government $1.2 billion. (14% decrease in government revenues from $1.6 to $1.4))

c) Eliminating dividends at individual level: $ 3 billion earnings, $1 billion dividends, $1 billion corporate taxes, $1 billion retained. (Company $1 billion, Government $1 billion, Shareholders $1billion). Shareholders get $.8 billion long term capital gains, Government $.2 billion long term capital gains. Total: Shareholders $1.8 billion, Government $1.2 billion.

2) Company that currently pays dividends of 50% earnings:

a) Current situation: $3 billion earnings, $1.5 billion dividends, $1 billion corporate taxes, $.5 individual taxes, $.5 billion retained. (Company $.5 billion, Government $1.5 billion, Shareholders $1 billion.) Shareholders get $ .4 billion long term capital gains, Government: $.1 billion long term capital gains. Total: Shareholders $1.4 billion, Government $1.6 billion.

b) Eliminating dividends at corporate level, with increased dividend payout: $3 billion earnings, $2 billion dividends, $.33 billion corporate taxes, $.67 billion individual taxes, $.67 billion retained. (Company $.67 billion, Government $1 billion, Shareholders $1.33 billion). Shareholders get $.53 billion long term capital gains Government $.14 billion capital long term capital gains. Total: Shareholders $1.86 billion, Government $1.14 billion. (29% decrease in government revenues from $1.6 to $1.1.4)

c) Eliminating dividends at individuallevel: $3 billion earnings, $2 billion dividends, $.33 billion corporate taxes, $.67 billion retained. (Company $.67 billion, Government $.33 billion, Shareholders $2 billion). Shareholders get $.53 billion long term capital gains, Government $.14 long term capital gains. Total: Shareholders: $2.53 billion, Government $.47 billion. (71% decrease in government revenues)


Now, these are scenarios, but I think the effect is correct. Reduced government revenues and increased return for shareholders is modest for the New Economy companies that now retain earnings, and the same regardless of how double taxation is eliminated. With companies that now pay dividends, the effect is much more dramatic, especially when dividends are eliminated at the individual level.

As a political note: the Old Economy companies that pay dividends tend to be associated with the Republicans, while the New Economy companies tend to have mixed politics, or even lean more to the Democrats (Microsoft contributed heavily to the Republicans, but that may have been because of the anti-trust actions. A lot of high tech executives, however wealthy they are, share Democratic values on non-economic issues, just as do many of the wealthy in Hollywood.)

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Author: Juggernaut8 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6123 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/12/2003 11:37 PM
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I do not agree. In some cases, the best use of the money is to return it as dividends. In other cases, the best use is pure expansion.

Eliminating double taxation is not going to be a magic bullet for stopping managements from spending on bone-headed projects and empire-building, but its possible that it could intill a little more discipline in the spending process.

If one of the layers is eliminated, tax revenues will fall. As the elder Bush once said, supply-side economics is voodoo economics. It did not work under Reagan, and I would be absolutely shocked if it works now. I have no problem with cutting taxes if it is at the expense of excess spending by our government. But cutting taxes with the belief that *eventually* the economic output will grow so much that we outgrow our deficits and have huge government surplusses...well look where our debt went the last time we entered into such a policy.

I don't recall the arguments to explain why, but a lot of economists don't believe a little debt is all that bad. Maybe someone with more of an economics background can step in.

As far as the wetlands thing and others, I don't agree with a lot of what the current administration is doing.

-J8



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Author: DanielDauenhauer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6125 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/13/2003 2:22 AM
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4) Given the budget deficit, even if a strong case can be made for eliminating double taxation in principle, can the country afford it now, and even if it does improve the use of working capital, with real growth effects, shouldn't this be balanced with other taxes on those receiving the most benefit to keep the deficit manageable?

I think that making the tax code more balanced, getting rid of the bizarre artificial distortions that our tax code makes in the economy, would be a good thing in and of itself. And, there's nothing that says that we can't also raise the rates to make up the difference.

Currently, the highest individual tax rate is about 60% (since wages over a million dollars aren't deductible from taxable corporate income), but that's mostly being evaded by using ESO's. In fact, I hold the idiot who pushed through that stealth tax increase on the rich directly responsible for the rise in popularity of ESO's, with their shareholder unfriendliness and their corrosive effects on management integrity.

Bush could do something like make dividends deductible from taxable corporate income, make wages over a million dollars deductible from taxable corporate income, make capital gains taxed at normal income rates (but with some form of his nifty "deemed dividend" thingie to raise the effective cost basis of long-term shareholders by their share of the company's taxable income -- which incidentally wouldn't apply to ESO's, since their purchase date is the exercise date), bump up the maximum corporate tax rate to equal the maximum individual tax rate, and then raise them both as much as necessary to keep expected tax receipts the same. (The maximum corporate tax rate should exactly equal the maximum individual tax rate in order to minimize incentives for insider management and directors to game the system at the expense of outside shareholders.) Whether the structure should be made more rational is a completely separate question from whether taxes should be cut, and for whom.

Cheers,
Daniel Dauenhauer

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6126 of 35345
Subject: Re: Shrub: No taxes on Dividends Date: 1/13/2003 9:28 AM
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Eliminating double taxation is not going to be a magic bullet for stopping managements from spending on bone-headed projects and empire-building, but its possible that it could intill a little more discipline in the spending process.

Good management will have an extra option to use, and they will do so when it is the best use of funds. Bad management will not improve just because a new option is provided...

I don't recall the arguments to explain why, but a lot of economists don't believe a little debt is all that bad.

A little debt can be a good thing -- think of a company using a little debt as leverage to help grow more quickly in their early years. If the debt level is properly managed, and only used sparingly when truly required, this leverage can provide a dramatic improvement to the long-term prosperity of the company/country. The problem is...the US does not have a little debt. The US has a LOT of debt. And a lot of debt is never a good thing...

As far as the wetlands thing and others, I don't agree with a lot of what the current administration is doing.

My comment on the wetlands was out of place in this thread, but it really does bother me. Honestly, it was not until around Thanksgiving that I began to get really disgusted by this administration. Prior to that, I was not thrilled, but I was not terribly upset either. Ah well...we'll find out what the American populace thinks in about 20 months...

ACME



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