- Aug 26, 2000
- 28,653
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This is an article from Blair Hull, a illinois democrat senatorial candidate:
THE BUSH DIVIDEND HOAX
By Blair Hull
President Bush's $674 billion tax cut will not provide much, if any, economic stimulus, but at least it's stirring the debate over the nation's economic policy. And there's plenty of criticism to go around: the Bush plan is skewed toward the wealthy, does little to boost the economy in the short-term and creates huge federal deficits that threaten long-term economic growth. Moreover, it perpetuates the special interest-driven policy of porous corporate taxation without effectively eliminating incentives for risky investment.
Also lost in the uproar over the Bush tax scheme is one of its most significant shortcomings: this plan isn't good for business or corporate governance, either.
That's because the centerpiece of the President's staggering tax cut-eliminating the tax on dividends-is inefficient at best, and intellectually dishonest at worst.
Bush's plan calls for ending the so-called "double taxation" that occurs when a company pays taxes on its profits and shareholders pay taxes on their stock dividends. But the President's proposal is half-baked: in addition to the fact that it only provides a break to those fortunate enough to own stock, most Americans are already shielded from dividend taxes because their stocks are held in tax-exempt 401(k)s and other pension plans. The overwhelming majority of those who would see the real benefits from the dividend tax cut are wealthier investors who can afford to pay the tax and are less likely to spend their new bounty on refrigerators and cars.
But just as the "stimulus" justification for the Bush proposal obscures the entire truth, so does the "double taxation" claim. For corporate profits to be taxed twice, they must be taxed once. Yet many corporate profits are taxed zero times.
The Center for Tax Justice estimates that less than half of all corporate profits were subject to the corporate income tax in 2002. Even though the United States has the 4th highest corporate tax rate of the 30 countries of the international Organization for Economic Cooperation and Development, the overall tax burden that U.S. corporations pay ranks 27th in the group.
This comes as a result of an elaborate system of corporate loopholes secured by special interests to systematically evade corporate income taxation. Such loopholes include the establishment of offshore shells to hide executive and corporate income, extraneous deductions on employee benefits, and a myriad of corporate subsidies that encourage policies as destructive as toxic waste dumping on federal lands.
Instead of rewarding corporate interests that skirt and exploit US tax laws, we should crack down on those corporate loopholes and use part of the money to encourage corporations to issue dividends instead of financing their operations with escalating levels of debt.
The current system rewards the corporate accumulation of debt while discouraging corporations from issuing dividends. Companies are allowed to deduct the interest they pay on debt from their corporate taxes, but dividends are not deductible.
In the 1990s, companies held on to their profits, increased leverage, and focused on aggressive, risky growth. The deeper they went into debt, the more interest they were able to write off. It is clearly in our interest to eliminate the perverse incentive that encouraged this "leave all bets on the table" approach. Highly leveraged companies do not promote long-term economic stability. We don't need any more Enrons.
In 2001, in what now seems like a different era, President Bush pushed through a massive tax cut-tilted mainly toward the rich-that he claimed would jump-start the economy. The government boasted a huge surplus, and few Americans were contemplating an expensive war in the Persian Gulf.
Today, the economy remains sluggish, state governments are drowning in record-level red ink, nearly 300,000 Illinois seniors lack prescription drug coverage, and we're facing historic federal deficits and a potential war with Iraq that could cost $200 billion or more. The Bush latest proposal would fix none of these problems.
If we want a short-term stimulus, there are far more efficient-and less expensive-ways to do it than what's offered by the President's plan. We can provide refundable tax credits to low-income workers and families. We can readjust the Bush tax cuts to target more lower- and middle-income earners. We can provide aid to states for investments in infrastructure that current deficits will force them to slash.
These should be our top priorities.
And if we want to act responsibly for the long-term, it would make sense to restructure dividend taxes as a broader package of corporate tax reforms. By cracking down on corporate tax loopholes-in conjunction with eliminating the incentive for risky, debt-financed corporate behavior-we can bridge the gap between "zero taxation" and "double taxation." And we could do so without the fiscally irresponsible record-setting deficits that the Bush proposal would create.
With so much at stake, we need long-term solutions instead of ill-conceived quick fixes motivated more by politics than rational economic principles.
Our highest elected leaders should make decisions based on two principles: that they represent the right priorities, and that they constitute sound long-term policy over political solutions. In offering this misguided plan under the guise of economic stimulus, the President's course fulfills neither.
THE BUSH DIVIDEND HOAX
By Blair Hull
President Bush's $674 billion tax cut will not provide much, if any, economic stimulus, but at least it's stirring the debate over the nation's economic policy. And there's plenty of criticism to go around: the Bush plan is skewed toward the wealthy, does little to boost the economy in the short-term and creates huge federal deficits that threaten long-term economic growth. Moreover, it perpetuates the special interest-driven policy of porous corporate taxation without effectively eliminating incentives for risky investment.
Also lost in the uproar over the Bush tax scheme is one of its most significant shortcomings: this plan isn't good for business or corporate governance, either.
That's because the centerpiece of the President's staggering tax cut-eliminating the tax on dividends-is inefficient at best, and intellectually dishonest at worst.
Bush's plan calls for ending the so-called "double taxation" that occurs when a company pays taxes on its profits and shareholders pay taxes on their stock dividends. But the President's proposal is half-baked: in addition to the fact that it only provides a break to those fortunate enough to own stock, most Americans are already shielded from dividend taxes because their stocks are held in tax-exempt 401(k)s and other pension plans. The overwhelming majority of those who would see the real benefits from the dividend tax cut are wealthier investors who can afford to pay the tax and are less likely to spend their new bounty on refrigerators and cars.
But just as the "stimulus" justification for the Bush proposal obscures the entire truth, so does the "double taxation" claim. For corporate profits to be taxed twice, they must be taxed once. Yet many corporate profits are taxed zero times.
The Center for Tax Justice estimates that less than half of all corporate profits were subject to the corporate income tax in 2002. Even though the United States has the 4th highest corporate tax rate of the 30 countries of the international Organization for Economic Cooperation and Development, the overall tax burden that U.S. corporations pay ranks 27th in the group.
This comes as a result of an elaborate system of corporate loopholes secured by special interests to systematically evade corporate income taxation. Such loopholes include the establishment of offshore shells to hide executive and corporate income, extraneous deductions on employee benefits, and a myriad of corporate subsidies that encourage policies as destructive as toxic waste dumping on federal lands.
Instead of rewarding corporate interests that skirt and exploit US tax laws, we should crack down on those corporate loopholes and use part of the money to encourage corporations to issue dividends instead of financing their operations with escalating levels of debt.
The current system rewards the corporate accumulation of debt while discouraging corporations from issuing dividends. Companies are allowed to deduct the interest they pay on debt from their corporate taxes, but dividends are not deductible.
In the 1990s, companies held on to their profits, increased leverage, and focused on aggressive, risky growth. The deeper they went into debt, the more interest they were able to write off. It is clearly in our interest to eliminate the perverse incentive that encouraged this "leave all bets on the table" approach. Highly leveraged companies do not promote long-term economic stability. We don't need any more Enrons.
In 2001, in what now seems like a different era, President Bush pushed through a massive tax cut-tilted mainly toward the rich-that he claimed would jump-start the economy. The government boasted a huge surplus, and few Americans were contemplating an expensive war in the Persian Gulf.
Today, the economy remains sluggish, state governments are drowning in record-level red ink, nearly 300,000 Illinois seniors lack prescription drug coverage, and we're facing historic federal deficits and a potential war with Iraq that could cost $200 billion or more. The Bush latest proposal would fix none of these problems.
If we want a short-term stimulus, there are far more efficient-and less expensive-ways to do it than what's offered by the President's plan. We can provide refundable tax credits to low-income workers and families. We can readjust the Bush tax cuts to target more lower- and middle-income earners. We can provide aid to states for investments in infrastructure that current deficits will force them to slash.
These should be our top priorities.
And if we want to act responsibly for the long-term, it would make sense to restructure dividend taxes as a broader package of corporate tax reforms. By cracking down on corporate tax loopholes-in conjunction with eliminating the incentive for risky, debt-financed corporate behavior-we can bridge the gap between "zero taxation" and "double taxation." And we could do so without the fiscally irresponsible record-setting deficits that the Bush proposal would create.
With so much at stake, we need long-term solutions instead of ill-conceived quick fixes motivated more by politics than rational economic principles.
Our highest elected leaders should make decisions based on two principles: that they represent the right priorities, and that they constitute sound long-term policy over political solutions. In offering this misguided plan under the guise of economic stimulus, the President's course fulfills neither.
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