Tax Relief for Dividends

["John Gelles" <johng@xxxxxxxxxx>]

    It is easy to agree with Dr. Bruce R. McFarling
    (whom, as I recall may be an American professor
    teaching in Australia,) that the progressive element,
    now embedded in the American tax on dividend
    income, ought to be retained either by giving a uni-
    form dollar deduction to taxpayers for dividends
    received, say $500, rather than an exemption
    for all dividend income. The latter treatment
    (desired by conservatives) can give huge tax
    benefits to the very richest tax avoiders, and
    practically no benefit to the poor, middle class
    or even upper middle class.

    It is also true that the media in the USA do
    not much mention progressive or regressive
    features of tax reform proposals.

    Just how bad is the idea that limited liability
    makes sense on its own and should not be
    paid for by producing corporations or their
    customers?  That depends on your beliefs
    relative to business organization, production
    and taxation.

    I would, in present circumstances, allow
    all publicly held corporations to deduct from
    their taxable income all dividends -- the same
    as they do for interest. This would not
    benefit the rich at all -- only corporations.
    The rich would pay progressive income
    taxes on the dividends (if we had such
    taxes the same as now).

    Dr. Bruce's analysis was more focused on
    the economic stimulus effect of a tax cut.
    Here, any tax reduction ought to be in the
    form of uniform dollar credits that pay
    cash to the poor and, maybe, everyone
    else -- even to the poor who paid no taxes.

    The conservatives try to sell the idea that
    you can only cut taxes for people who paid
    them -- especially for those who paid the
    most taxes.

    That is the odious argument that Bruce
    and I might agree is odious. A tax cut
    returns aggregate tax revenues directly to
    the people.  If they are intended to stimulate
    spending, they should be sent to the poorest
    people.to spend for the benefit of the whole
    nation and its economy.

    Interestingly, the hybrid vehicle deduction is
    also tailored for the rich. As a buyer of the
    Honda Civic Hybrid, I will get a deduction
    from gross income of $2000. That will be
    worth about $400 in cash. Richer purchasers
    will get the same deduction, but it will be
    worth $800 to them.

    If the deduction were a credit, we would
    all get the same dollar amount. Of course,
    relative to their disposable income that
    supports one's private lifestyle, $800 means
    nothing to a rich person. A uniform credit of
    $500 would mean more to me than $400.
    And many who bought the same Hybrid
    Honda as I will get zero cash benefit --
    a result of the law that really stinks.

    John Gelles

----- Original Message -----
From: William B. Ryan <william_b_ryan@xxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Cc: <socialcredit@xxxxxxxxxx>
Sent: Monday, January 27, 2003 10:25 AM
Subject: Re: Federal Budget Deficit Expected
                   to Reach Over $300 Billion


An interesting comment regarding limited liability.
Are you saying that liability should not be limited,
or are you saying it should be limited but they
[that is, corporations or their stock holders]
should pay for it?

Also your comment about how Americans get
their news.  Is it any different in Australia?

Bill
======================
On Mon, 27 Jan 2003 15:36:29
 Dr. Bruce R. McFarling wrote:
...
Government spending is directly stimulative, because
what they buy necessarily provides effective demand.

Tax reductions are indirectly stimulative, by increasing
disposable incomes.  The additional consumption decision
between the government policy decision and the stimulus
normally implies a weaker stimulus, by the propensity to
consume (share of new income that tends to be spent
rather than saved).  If, that is, a relatively modest increase
per person spread around a lot of people, as with, say,
raising the personal deduction (tax free threshold in
Australia), then it would take a very broad based
sentiment in favour of not spending that disposable
income to fall very far short of the expected impact.

Of particular concern is that a reduction in taxation
on income or dividend income, since more of that
decision (whether to spend or save that income)
[affects] a relatively small number of people (insti-
tutional investors, wealthy individual investors)
making decisions regarding bigger chunks of
money at a time.

If there is a strong tendency to hold the tax cut
as "reinvested" dividends, it might not have a
major stimulus effect.

Of course, if the political cause of fighting the
dividend income tax cut was lost, it would be
preferable for the corporate tax paid on the
dividend income to come back as franking
credits, rather than dividends to be tax free,
since tax credits retain the principle of
progressive income tax.

The notion that investors in corporations should
essentially recieve the substantial social benefit
of limited liability for free, which is the essence
of the "no double taxation" argument, is an odious
one, and its a shame that most Americans get
their news from direct beneficiaries of this notion.