John S. Irons is disappointed at the Republicans in the U.S. Senate. We all have reason to be very disappointed in them.
Posted by DeLong at May 16, 2003 09:49 AM | TrackBackArgMax Economics Weblog: Senate Passes Tax Cut: The Senate republican tax plan, which passed yesterday, will phase-in a dividend tax cut, and then repeal it after three years.
The Senate plan calls for the dividend tax will be cut by 50% this year, and fully eliminated for 2004, 2005, 2006 and then reinstated for 2007 and beyond.
The sole reason for this gimmick is to reduce the cost below the previously agreed $350 billion, and hence to make the bill filibuster-proof. The true cost of the permanent tax reform is thus much greater than $350 billion.
The additional problem is that the phase in is terrible economics. As a company, will you pay out dividends this year, when they will be taxed at 50%, or next year, when they will not be taxed at all?
The likely result is a large reduction in dividends this year - exactly when we need economic stimulus... Senate Approves Tax Cut Proposal (washingtonpost.com)
Republicans in the Senate did precisely what they wished to do, precisely. If they are harming the working class, if the working class will find cherished programs as Social Security and Medicare put at serious serious risk, that is fine with Senate Republicans. We have an Administration intent on undoing the New Deal, and a Republican-Congress that is happy to go along.
Paul Krugman as always was right about the tax bill cost, which will be far far more than the figure the press mindlessly parrots.
Posted by: lise on May 16, 2003 11:01 AMI am missing the connection. Why will the businesses change the way they pay out dividends based on how much the dividends are taxed? Is the assumption that the board members and execs are major stock holders and will structure the payouts to minimize their own tax liability? The individuals receiving the dividends pay the tax, not the corporations. A lot of the dividends are paid to pension funds or retirement accounts that are not taxed. Will it be acceptable to delay paying dividends to the untaxed so the taxed can make out better? Plus if Bush is not re-elected, the whole tax cut could be undone and 50% would be the best they could do.
How do they predict if this tax cut will affect when and how much dividends will be paid? Have the surveys and studies already been done on this issue or are they flying blind on this one?
Posted by: bakho on May 16, 2003 12:06 PMDisappointed in the Republicans? Why is anyone surprised about them? They've been singing the same tune for years. What about Sen. BEN NELSON (D-NE)?! BEN NELSON! What a coward. This dividend tax cut thing is his fault!
Posted by: Bobby on May 16, 2003 12:44 PMBobby
Paul Krugman was on PBS News Hour, May 14, with a typical opposing radical-conservative ---
http://www.pbs.org/newshour/bb/economy/jan-june03/taxes_5-14.html
Posted by: lise on May 16, 2003 01:03 PMIns't this a huge incentive to pull your money out of any investment of any kind that does not pay dividends, and out of any company that reinvests profits in things like research, employee benefits, pensions, etc? NO TAXES AT ALL! The ONLY thing that matters now will be dividends.
Posted by: IssuesGuy on May 16, 2003 01:23 PMThanks Lise.
Posted by: Bobby on May 16, 2003 03:33 PMWell, that would favor Old Economy firms, wouldn't it?
I doubt that's accidental.
Posted by: Vox Clamantis on May 16, 2003 05:21 PMLook on the bright side. A stepped implemenataion followed by a sudden repeal should give the econometricians plenty of variation to work with. I reckon we'll know in about 10 years what the effects of dividend taxation are, instead of purely guessing as both sides are at the moment.
Posted by: derrida derider on May 17, 2003 11:08 PM