Arnold Kling  

Impact of Dividend Tax Reform

Employees as Owners... Protesting Economic Education...

The users of housing rehabilitation tax credits believe that the Bush Administration proposal to eliminate double taxation of dividends will hurt their industry. Richard Moe writes,

By allowing shareholders to receive tax-free dividends only on corporate profits that are fully taxed, the Bush plan could force companies to make a choice: Take the tax credit, or forgo it to offer tax-free dividends that will make shareholders happy. Many companies are likely to choose the latter option--and even those that remain willing to invest in tax-credit projects are likely to invest less.

In other words, if you cut taxes for shareholders, you reduce the value of tax credits as subsidies.

For Discussion. Software developers have a saying, "That's not a bug. It's a feature!" How might that saying apply here?

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COMMENTS (1 to date)

It is absolutely a feature. As a tax consultant, I worked on big deals in the real estate industry. Far too many deals were undertaken or averted strictly on tax consideration. Many deals consisted of nothing but lawyer and accounting fees to move a few boxes on an org chart.

Efficient capital allocation depends on economically neutral tax policy... Simplification and dividend tax reform get us a big step closer.

As a general proposition, tax credits do more harm than good.

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