Re "Bush Tax Cut Plan Enters New Territory," news analysis, Jan. 4: A cut in the dividend tax will benefit neither the stock market nor most taxpayers. How much stock would you need to hold to save $100 in dividend taxes? Let's say the dividend tax is cut by half and the stock you hold pays 2% in dividends. If you're taxed around 40%, the new dividend tax would be 20%. So the $100 you save would be 20% of the total dividends: $500. If that equaled 2% of your stock value, then you would have to hold $25,000 of stock. So to save even a mere $100, someone would need to have at least $25,000 in dividend-paying stock.
As for the stock market: Your article quotes experts who claim that the dividend tax cut will lift share prices -- a debatable point. But let's just suppose that the cut indeed benefits dividend stocks. Then it will necessarily punish nondividend stocks. What companies don't pay dividends? Typically, they are the new, bold, risk-taking companies that reinvest all their profits and do the most to advance American industry. What types companies are structured to pay dividends? Big Tobacco, Big Oil, the Big Three auto makers ... not exactly engines of innovation. With a stimulus like this, who needs a recession?
As a small-time investor, I've always thought that taxing stock dividends as regular income was wrong. This income, deriving as it does from the ownership of stock, should be a capital gain and, thereby, capable of being set off against capital losses. The proposal to lower taxes on dividend income does seem like a desirable adjustment, until you consider who would most benefit under the plan.
I ask Congress to either reform this tax by putting dividend income into the capital gains column or lower the tax only when one's gross income falls below the high level of what's considered middle income. Either way, or both, should be as far as the government goes toward achieving the desired economic stimulus without creating a windfall benefit for the wealthy.
In light of the huge federal deficit, President Bush is calling for more tax cuts. Gee, I guess I could solve my financial problems by figuring out how to reduce my income.
White House economic policy calls for more tax breaks for the wealthy and massive government deficits, so why should anyone be worried about the economy? Never fear, plenty of Iraqi crude will be flowing soon. Perhaps their real economic policy is to ensure boatloads of cheap oil, which is good for inflation, productivity and a booming economy. Really, folks, you'll learn to like war. It's just, well, good business.