Dividends and taxation

by on February 13, 2012 at 11:20 am in Economics, Law, Uncategorized | Permalink

President Obama wants to tax dividends at ordinary income rates.  These results, from Marcus and Martin Jacob, should not come as a huge surprise:

We compile a comprehensive international dividend and capital gains tax data set to study tax explanations of corporate payouts for a panel of 6,416 firms from 25 countries for 1990-2008. We find robust evidence that the tax penalty on dividends versus capital gains is statistically significant and negatively related to firms’ propensity to pay dividends, initiate such payments, and the amount of dividends paid. Our analysis further reveals that an increase in the dividend tax penalty raises firms’ likelihood to repurchase shares, initiate such repurchases, and the amount of shares repurchased. This is strong confirming evidence that when listed industrial firms globally design their payout policies, they take into careful consideration the relative tax implications of their payout choices.

Here are some Finnish results:

Using register-based panel data covering all Finnish firms in 1999-2004, we examine how corporations anticipated the 2005 dividend tax increase via changes in their dividend and investment policies. The Finnish capital and corporate income tax reform of 2005 creates a useful opportunity to measure this behaviour, since it involves exogenous variation in the tax treatment of different types of firms. The estimation results reveal that those firms that anticipated a dividend tax hike increased their dividend payouts by 10-50 per cent. This increase was not accompanied by a reduction in investment activities, but rather was associated with increased indebtedness in non-listed firms. The results also suggest that the timing of dividend distributions probably offsets much of the potential for increased dividend tax revenue following the reform.

Here are more results from Finland.  In the UK dividend tax increase of 1997 it seems pension funds were the marginal investor and they bore much of the burden from that particular reform.

1 Barry Kelly February 13, 2012 at 11:25 am

So what remains, then, is to tax capital gains at ordinary income rates too.

2 John Thacker February 13, 2012 at 11:42 am

If capital gains were then indexed for inflation, that would make more sense. Otherwise it’s a little crazy.

Comparing the nominal to real rate of return for Treasuries right now, the effective tax rate is over 100% for all Treasury notes, even with the long term capital gains rate.

3 derek February 13, 2012 at 12:03 pm

How about spend less money?

4 msgkings February 13, 2012 at 12:55 pm

Good idea, derek. We will need to do that ALSO.

5 Tom February 13, 2012 at 5:25 pm

Gov”t is at a peacetime record 24%, let’s get down to the normal 17-18% and THEN discuss more taxation.

6 msgkings February 13, 2012 at 5:29 pm

Again, either/or is counterproductive and predictably partisan. Taxes are also at a 60 year record low of 15%. Let’s get them both to 18% and voila, budget balanced.

7 David February 14, 2012 at 1:56 am

It doesn’t make sense to focus on getting federal spending down to its historical levels as an end in itself. With retiring baby boomers, keeping government at 18% would require basically eliminating to either Social Security and Medicare, or all other domestic spending. We need to get comfortable with the fact that if we’re going to fulfill social contract, government is going to have to take up a larger part of the economy. We should be thinking about the best ways to organize resources, not an arbitrary limit on government spending.

8 Jack Dawkins February 13, 2012 at 12:14 pm

Dividends are already taxed at corp. income rates. The additional tax is an erosion of stakeholder incentive for buying in to a firm (raising capital). If we are for moving toward the idea that less leverage is better (which we are), we must focus more-so on equity capital, we must increase incentive to hold for long periods by encouraging income generating stocks (dividend-paying) and focus less on leveraged growth stocks.

9 Andrew' February 13, 2012 at 12:19 pm

“So what remains, then, is to tax capital gains at ordinary income rates too”

Sure, as long as it’s 10%.

10 Torben February 13, 2012 at 4:23 pm

This is just correlation, and no more than that to say the least.

11 rluser February 13, 2012 at 5:19 pm

And this is a horrid idea. The present tax code makes explicit exception for taxing limited capital gains of one’s primary residence, but more generally a tax on long term capital gains is an additional mechanism for taxing via inflation.

12 Rich Berger February 13, 2012 at 11:54 am

More red meat for the base – I think Obama’s strategy for the election is clear. We will see if the electorate is stupid twice in a row.

13 Andrew' February 13, 2012 at 12:19 pm

You’ll never lose money betting on the stupidity of voters. Who said that?

14 msgkings February 13, 2012 at 12:56 pm

Karl Rove

15 Tom February 13, 2012 at 5:25 pm

– 2008

16 msgkings February 13, 2012 at 12:57 pm

You mean like in 2000 and 2004?

17 msgkings February 13, 2012 at 1:00 pm

By the way I say all that as someone who thinks the electorate is always stupid, or rather more stupid than it should optimally be.

No franchise (or office holding) for IQs under 100 I say. Incredibly elitist of me I know.

18 rpl February 13, 2012 at 1:04 pm

Some of the stupidest political opinions I’ve ever heard have come out of the mouths of acquaintances whom I know for certain to have IQs well above 100. High IQ by itself is no safeguard against bad reasoning. Indeed, it is the smarter people who are most adept at constructing plausible-sounding rationalizations for the things they wanted to believe all along.

19 msgkings February 13, 2012 at 1:22 pm

Sure, high IQ doesn’t make you infallible. But it makes you less likely to be wrong about something that requires some thought.

This will never happen, of course.

20 rpl February 13, 2012 at 1:43 pm

[IQ] makes you less likely to be wrong about something that requires some thought.

I’m not sure that’s true at all. Do you have any evidence to support it?

In my experience intelligence and lack of susceptibility to bias don’t seem to be strongly correlated. Even in theory, it’s not obvious that high intelligence should naturally insulate you from bias, since greater intelligence actually makes you more susceptible to biases like motivated reasoning and overconfidence.

21 msgkings February 13, 2012 at 1:51 pm

Since my idea is quixotic and impossible to see happening, I don’t have a lot of data. Just common sense I guess, I like smart folks to be the ones making decisions, ceteris paribus.

Obviously smart folks won’t always agree (folks whose political stances I reject such as Dick Cheney, Karl Rove, Noam Chomsky, Bernie Sanders, Ron Paul, etc are no dummies), but at least they can have rational debates that minimize (not eliminate) the influence of emotional, nonrational dogma.

22 rpl February 13, 2012 at 2:41 pm

[People with high IQs] can have rational debates that minimize (not eliminate) the influence of emotional, nonrational dogma.

And you know this, how? So far, all you’ve offered in support of the notion is your own feelings about intelligent people. When I challenged those feelings by observing that many intelligent people engage in emotional, nonrational debate about politics, you brushed those facts aside as irrelevant. I’m not criticizing you for doing that, per se, since that’s pretty much what most people do when arguing about politics; you’re no worse than the typical voter in that respect. However, it does make me wonder, are you imagining that you yourself are one of those high-IQ individuals who should be entitled to vote and hold office? If so, then why you and not the average voter, since you seem to be prone to the same cognitive mistakes that they are?

23 msgkings February 13, 2012 at 2:45 pm

I’m only arguing about (pointlessly, I keep adding, lighten up…) the BELOW average voter. And yes I’m just yammering here, I haven’t done any peer reviewed work on my snarky, impossible proposal.

So you ‘win’.

Yet I still think smarter folks > dumber ones when it comes to politics and policy. I guess you don’t agree.

24 rpl February 13, 2012 at 3:58 pm

So you ‘win’.

Considering that my goal in engaging with you was to get you to examine your assumptions and ask yourself whether you’re quite sure they’re true, I’d say that I pretty comprehensively lost.

In my opinion your belief that “smarter folks > dumber ones when it comes to politics and policy,” is completely untainted by the faintest whiff of evidence; yet you cling to it every bit as zealously as the “below average” people cling to their beliefs. If that doesn’t make you pause and reflect a little, then I’d say that you yourself are pretty good evidence against the superior reasoning ability of the “above average” (assuming you would place yourself in that half of the IQ distribution — correct me if I’m wrong on that).

25 msgkings February 13, 2012 at 5:16 pm

I guess my belief in the superiority of higher intelligence is ‘faith-based’, since there’s no evidence. 🙂

26 Marian Kechlibar February 14, 2012 at 7:22 am

“minimize (not eliminate) the influence of emotional, nonrational dogma”

Msgkings, people like Torquemada and Himmler were fairly intelligent.

From what I’ve heard about imam Khomeini, he was freaking smart, yet a dour fanatic.

Intelligent and critically thinking people may still, at the same time, profess crazy beliefs deeply imprinted in their early youth.

27 msgkings February 14, 2012 at 12:29 pm

Agreed on all of it. This is so obvious as not to need stating. Hitler was pretty smart too. Take that, Godwin!

My point is just that people can be ‘wrong’ all up and down the bell curve. But the left side has a lesser ability to understand what’s going on. Why is this controversial? Isn’t that self evident, higher intelligence is better than lower?

I have said over and over we won’t ever arrange our democracy based on that, but it might improve things. When the US was founded only white landowning males could vote. While that certainly wasn’t a perfect correlation with IQ, by restricting the franchise I believe you had a higher quality pool of voters. What metric would I use today if I were emperor? IQ.

28 Ryan February 13, 2012 at 12:08 pm

Imagine a world in which dividends were not taxed at all.

Poor people could easily gain access to dividend revenue. It would be a godsend, a great equilizer, something that would increase upward mobility for the poor by leaps and bounds. Investment money would flock to corporations paying a high dividend yield, creating a huge market where corporations would compete for investors’ capital by promising to seek the highest revenue-generating activities and maximum profitability/efficiency.

In short, eliminating dividends taxes would be a free lunch for rich and poor alike, fostering economic growth and improving upward mobility, and extending access to market participation to even the poorest investors.

After all, I thought the whole purpose of incorporation was to generate greater investment by promising to share revenue. Dividend taxes eliminate the whole purpose of incorporation.

BTW, you need not “imagine” such a world. It existed as recently as the year 2007 in Canada, under a special corporate designation called “income trusts.”

Tax codes kill economic activity, and keep the poor right where the rich want them: in the gutter.

29 Laserlight February 13, 2012 at 12:47 pm

“keep the poor right where the rich want them: in the gutter.”

And this assumption about what rich people want is based on what?

30 Ryan February 13, 2012 at 1:10 pm

Personal observation of a variety of political systems across the world. Of the rich, by the rich, for the rich.

For what it’s worth, I consider unfettered market capitalism the single most important thing that can be done for the poor. The fact that the rich continue to inhibit the progress of capitalism has been one of the most disheartening lessons I’ve learned over the course of my adulthood.

31 Jonathan Swift February 13, 2012 at 4:01 pm

It can’t be based in fact. Poor people in the gutter don’t make good mulch for my diamond trees. Furthermore, it makes the flesh of their babies tough and stringy.

32 figleaf February 13, 2012 at 12:50 pm

Very touching concern for the poor, Ryan. But take heart! If dividends are taxed as ordinary income then any poor person with dividend income would pay little or no tax on it because, sort of by definition with standard deductions and all impoverished people don’t start paying income tax until they stop being impoverished. (They obviously do pay social security taxes on labor, and pay exorbitant amounts of sales, property, and communications taxes but raising or lowering dividend taxes wouldn’t change any of those.

In other words taxing dividends as ordinary income would have virtually no impact on the poor. And since almost everyone else’s dividend earnings are received inside tax-free vehicles such as IRA and 401(k) programs it wouldn’t affect them either.

It would affect me because I’m not poor and because I receive a fair percentage of my income from dividends. But since the 39% tax rate on capital gains didn’t alter my investment strategies in the 1980s and early 1990s it seems very unlikely ordinary dividend taxes would alter my investment strategies today.

I do agree with Barry Keller and John Thacker, above, that simple indexing of dividends and capital gains would streamline most of the real distortions without overwhelming either consumer accounting and tax-preparation software let alone the software professionals use.


33 Ray February 13, 2012 at 12:51 pm

There is no correlation between low tax rates on capital gains and dividends and strong economic growth (once other factors are discounted). Capital gains rates have displayed no contemporaneous correlation with real GDP growth over the past forty years. So I have no idea where your ‘free lunch’ for the poor originates.

As opposed to just postulating something I present some evidence:
The Economic Effects of Capital Gains Taxation – Congressional research service

Capital Gains Tax Rates, Stock Markets, and Growth – Brookings Institution

Let’s assume that we try your experiment – and let’s say it is not a godsend. Would you then be willing to to go back to our current system or to tax dividends and capital gains at higher rates or does your ideology prevent you from implementing policy from empirical testing?

And do you have evidence that high tax rates ‘keep the poor right where the rich want them: in the gutter’. Indeed there is evidence that low tax rates do just what you described.

And as far as the dividends vs capital gains – tax them both as regular income! And also add on payroll tax and get rid of the cap on payroll tax. That way Romney earning his millions would pay a high marginal rate instead of 14%. And also it would save social security – the insolvency of which conservatives love to harp on about.

And to quote another: “As a matter of principle, income from investments should not be treated as more beneficial to society than income from work.” And it’s unfair that a rich person makes $10 million in capital gains and pays no payroll tax. A poor person earning $16,000 a year does.

34 Jack Fraser February 13, 2012 at 1:08 pm

A) A good portion of that argument relies on no contemporaneous correlation. Very few projects are immediately profitable or operational. Eyeballing the graph, there appears to be a lagging effect, if any. I agree the dividends lead to growth argument is not the strongest argument.

B) The payroll tax is a very strange and possibly quite harmful beast. Why hold that up as a tax everyone should pay (which I infer based on your seeming implication that a rich person dodging it represents a horrible unfairness).

Unrelated, it appears an easy workaround would be abolishing the corporate income tax and raising taxes on individuals to compensate. But the odds of that happening are one in several million, I’m sure.

35 Ray February 13, 2012 at 1:58 pm

If you don’t like the payroll tax I am not sure what you propose to replace it. But I am open to suggestions,

As to the corporate income tax. Federal corporate incomes taxes as a percentage of GDP were 2.5% in 1975. In 2009 they were 1.6%. And I assume you would be sanguine.

However if you abolish it then individuals will have to pay higher tax rates. I would be OK with that assuming that the consequence was not a more regressive tax system. I would also have concerns that because of the zero rate individuals would try to circumvent the tax structure and de facto receive income but de juro be spending corporate profits that have not been distributed. Human nature would be very tempted considering that regular income tax would need to be quite a bit higher than it is now.

And I would ask to see any evidence that GDP growth is enhanced if corporation tax is abolished and the burden is moved to individual income tax.

36 Markg6078 February 14, 2012 at 3:35 pm

All taxes are paid by individuals either directly or indirectly. Amazing how many people do not know the most basic or principles. Do you think Exxon Mobil pays a cent of the tax on a gallon of gas or do you pay that they just increase the cost you pay at the pump by a penny?

37 TomO February 13, 2012 at 4:56 pm

“Unrelated, it appears an easy workaround would be abolishing the corporate income tax and raising taxes on individuals to compensate.”

Correct me if I am wrong, but if we abolish the corporate income tax, doesn’t that give a huge windfall to all non-US owners of American firms? Under current tax law, does the Sultan of Brunai pay US income tax on dividends he received from US Corporations? For that matter, doesn’t that also apply to capital gains? If it is a legal requirement that non0US citizens pay US taxes on interest or Dividends, how much revenue is lost through non-compliance? Would it make more sense to have mandatory withholding of dividend income for all parties (or is that already done)?

38 Ryan February 13, 2012 at 1:17 pm

Ray, drawing OLS correlations between various tax rates and various GDP growth statistics is not much in the way of evidence. That taxation distorts markets by changing human behavior is an a priori fact. There is plenty of evidence that higher dividend taxes discourage the issuing of dividends; but we don’t even require evidence to know that this would be so. It is an a priori fact. Make something more expensive, and you will end up with less of it.

Now, enabling corporations to regularly pay out profits to shareholders who need only invest small amounts for small levels of ownership also requires no empirical justification. That it is good for rich and poor alike is obvious and indisputable.

We can contort the issue into being one of particular growth and tax rates, but we need not. Sometimes all we need is a good a priori theory.

39 Ray February 13, 2012 at 1:47 pm

I take your point about taxing dividends alone. My point is that we should tax both capital gains and dividends at the ordinary tax rate. And that once done there is no evidence that GDP growth is adversely effected.

40 Ryan February 13, 2012 at 1:54 pm

Ohhh, sorry. I missed your point!

41 anonymous February 13, 2012 at 2:00 pm

I remind you that the income trust loophole in Canada was closed by a Conservative (both small-c and capital-C) government, despite alienating some of their own voting base, because it represented out-of-control unintended consequences, an imbalance in tax treatment that threatened to bring the whole system down (ie, there would have been a stampede of corporations in Canada converting into income trusts).

If you have any evidence whatsoever that the poor in Canada were investing in and benefiting from income trusts, I’d like to hear it. To my knowledge that was never even raised as an issue during any of the public discussion. The prime beneficiaries were rentiers.

42 Ryan February 13, 2012 at 3:35 pm

If you believe pointing out that it was the Conservative party that ended income trusts is some kind of “gotcha” for me, then you have misjudged my political leanings.

Of course corporations were stampeding to the income trust organizational structure. Who wouldn’t? Recall that this was precisely how corporations were organized in the beginning. Buy a share of ownership, receive a share of profit. That’s the whole point of corporations. The only reason income trusts were ever considered a “loophole” is because of the dividend taxes that ended corporations as they were meant to exist in the first place.

I don’t know what “evidence” you would accept, but income trusts were originally created as fixed-income investments for retired people. If that’s not “evidence” enough for you, then I don’t know what else to tell you. I invested in them on less than $15K CAD annual income and paid my way through school. People always want to put a stop to things that benefit the rich and the poor equally.

Well, it worked. Income trusts are gone and dividend taxes are nice and high. Now only rich people can afford to pay them and no student will ever again be able to pay for schooling using some saved-up money and a little ingenuity. You must be quite happy now.

43 derek February 13, 2012 at 11:52 pm

An anecdote, but a local electrician who worked for himself was setting up an income trust to do business. The tax benefits made sense. Not a rentier by any measure.

44 John February 13, 2012 at 12:20 pm

It is nice to see concrete evidence for something that is intuitively obvious. I can think of no reason not to tax capital gains and dividends at the same tax rate. Suppose they put the tax rate on dividends to 40%. I would bet you could construct some “replicating strategy” to get exactly the same result as you would have pre-increase, namely: Corporations keep the cash in bank accounts instead of paying it out. This will show up as an increase in the stock price. Then instead of collecting your dividend, sell a bit of stock. Seems equivalent to me.

This is why people hate the government: “Enjoy these additional headaches so that everyone can have the exact same outcome as before!”

45 dead serious February 13, 2012 at 12:23 pm

“Poor people could easily gain access to dividend revenue.”

I hope that this was your attempt at satire.

46 figleaf February 13, 2012 at 12:59 pm

If it wasn’t satire then I’d love to see what arguments he’d make in favor of eliminating the luxury tax on yachts! I mean, if we’d just eliminate that nasty old thing then rich and poor alike could afford yachts. And before you know it the yachting industry would finally surpass the auto and airline industries! It would be practically like a free lunch for the economy!

Or how about eliminating taxes on carried interest so rich and poor alike could afford to manage hedge funds! It would increase upward mobility by leaps and bounds!

And if only they’d make it legal for rich and poor alike to sleep under railroad bridges! Not only would it be yet another great equalizer, but it would allow the wealthy and even the merely middle-class to more efficiently allocate their capital instead of perpetually siphoning it off to pay for real estate, landscaping, heat, light, and of course property taxes.


47 msgkings February 13, 2012 at 1:03 pm

Poe’s Law? From ‘Ryan’ I mean.

48 John Skookum February 13, 2012 at 2:01 pm

There is no longer a “luxury tax” on yachts, and the reason why is a case study in the Law of Unintended Consequences. You should educate yourself. Here you go:


49 figleaf February 13, 2012 at 6:22 pm

I was vaguely aware that there had been movement to repeal the tax. And as I have maritime friends who’s livelihoods depend on private yacht owners I was aware of the unintended consequences of the tax and the trickle-down benefits of a repeal. I wasn’t aware that the taxes were repealed but then technically I didn’t and don’t particularly care. I was thinking about the teapot tempest when former presidential candidate John Kerry was caught docking some or all of his yachts out of state to avoid yacht-specific taxation in Massachusetts. But that was in 2004 and so, sure, that tax also have been repealed.

But if all yacht taxes have been repealed then so much the better! That means we can now measure whether there was a major uptick in the number of poor people buying yachts since such taxes were revoked.


50 Ryan February 13, 2012 at 1:21 pm

Oh, I forgot. All poor people are too stupid and incapable to become wise investors! I’ve met many poor people who invest in stocks, and a few who have managed to claw their way out of poverty by doing so. It is the height of vanity to assume that the poor are incapable of doing such things, and ample demonstration of precisely what I’m talking about. These kinds of prejudices are one way the rich keep the poor in the gutter.

51 msgkings February 13, 2012 at 1:24 pm

Anyone with enough capital to invest in stocks, and especially with enough to invest their way out of ‘the gutter’, to me doesn’t fit the definition of ‘poor’.

52 Ryan February 13, 2012 at 1:32 pm

While you’re defining it, others are living it. I don’t know what else to tell you. I’m not going discount “my lying eyes” just because you’ve come up with a theoretical definition that defies what they’ve seen. No sense arguing facts. *shrug*

53 msgkings February 13, 2012 at 1:40 pm

You’re not arguing ‘facts’. You are arguing anecdotes, and some pretty difficult to believe ones at that. Also very nongeneralizable.

As the kids say, fail.

54 The Original D February 13, 2012 at 2:23 pm

Everyone knows poor people are drug addicts. Want some proof? I know some drug addicts who are poor. QED.

55 steve February 13, 2012 at 1:37 pm

Methinks he knows no real poor people. Maybe just those who have to settle for the secondhand Bentley?


56 Ryan February 13, 2012 at 1:58 pm

Haha! An anecdote that contradicts your deeply held prejudices? It must be a lie! Why on EARTH would I make something like that up?

Marginal Revolution readers never cease to amaze me.

Okay, yeah yeah yeah folks. It’s alllllll a figment of my imagination. Nevermind. Pay no attention to the man behind the curtain. The White Zone is for loading and unloading… if you have to load or unload, please go directly to the White Zone… you’ll love it, it’s a way of life…

57 msgkings February 13, 2012 at 2:01 pm

LOL. You suck at this.

58 dead serious February 13, 2012 at 2:19 pm

The poor can barely, if even, make ends meet.

They don’t have oodles of disposable income lying around just waiting for a place to be saved or invested.

That’s why they’re called poor, you dolt.

59 Ricardo February 13, 2012 at 10:19 pm

Take heart, Ryan. As another commenter pointed out, the dividend tax increase only applies to those with income higher than $250,000. Those earning less than $100,000 will pay no tax on dividends at all.

So the poor will do just fine under this change, thank you very much. What’s the next argument against it?

60 Mo February 13, 2012 at 12:35 pm

We should simply make interest payments non-tax deductible. Why should debt financing be favored over equity financing?

61 Anthony February 13, 2012 at 3:33 pm

No, we should simply make dividend payments be deductible expenses for the corporations making them. Then we should treat dividends and earned interest the same on the recipient’s end, too.

62 celestus February 13, 2012 at 1:06 pm

Correction: according to the NYT, dividends will only be taxed as ordinary income if your taxable income is over $250k/year. If you are in the 10% or 15% brackets, dividends will continue to be untaxed; if you are in the 25% or 28% bracket, dividends will continue to be taxed at a 15% rate.

So the tax increase should hit most of the money invested in dividend stocks, but “dividends should be taxed at the same rate as income” is clearly not the fundamental principle Obama is going for here.

63 Anthony February 13, 2012 at 3:32 pm

So people who actually have the money to invest significant amounts of money on their own will be tax-penalized relative to those who invest through mutual funds or other vehicles which shelter dividend income. For existing large corporations, this isn’t a very big deal, though it will reduce pressure to pay dividends, but for smaller, newer corporations, the incentive to investors will be either to not invest, or to push for an early sellout.

64 rpl February 13, 2012 at 4:02 pm

So people who actually have the money to invest significant amounts of money on their own will be tax-penalized relative to those who invest through mutual funds or other vehicles which shelter dividend income.

What are you talking about? Mutual funds distribute their dividend income to their investors, who pay taxes on it as if they had earned it directly.

65 Anthony February 14, 2012 at 1:04 pm

Not quite. Either the mutual fund re-invests the dividends, or it holds the payouts as cash-equivalents. The investor doesn’t pay taxes unless the mutual fund sends a check, or the investor sells the mutual fund, at which point, the tax is on a capital gain.

66 The Anti-Gnostic February 13, 2012 at 1:12 pm

LOL. What other proposal does he have for us, a tax on Broughams and footmen? That’ll insure the rich pay their fair share!

Taxing capital gains at ordinary rates is, of course, unthinkable. The problem for these people is NEVER, EVER that Warren Buffett’s secretary’s taxes are too high.

67 msgkings February 13, 2012 at 1:28 pm

And the problem for you people is that taxes for anyone and anything are NEVER EVER too low.

I’m in the middle on this one. Taxes taken in at the Federal level are around 15% of GDP, the lowest in decades. Spending is also much too high as a % of GDP. We need to work on both.

68 The Anti-Gnostic February 13, 2012 at 1:49 pm

You’re not complaining that your taxes are too low; you’re complaining that other people’s taxes are too low. It’s that nameless, faceless blob known as ‘percentage of GDP’ which keeps us from utopia.

I don’t know a single middle or upper class liberal who just sends in a 1040 with no scheduled deductions.

69 msgkings February 13, 2012 at 1:56 pm

I hate this straw man. It’s the old ‘if Warren thinks he should pay more tax why don’t he?’ bullshit. I am upper income, and I think I can afford some more tax. I think others in my situation can too. My argument is not being addressed. But you knew that.

More taxes and less spending don’t lead to utopia, they lead to a balanced budget.

What the hell did you think would happen when Bush passed a massive tax cut and didn’t reduce, in fact increased dramatically, spending? I know what Art Laffer told you would happen. That was a ‘laffer’ in itself.

70 The Anti-Gnostic February 13, 2012 at 2:31 pm

I don’t think Arthur Laffer says what you think he does.

I know what happens when voters vote themselves more benefits and less taxes. Are you surprised that’s how democracy turns out? Every democracy on the planet has an identical problem. Also, I haven’t voted since 1996, so your hissy fit about BUSH! is kind of wasted on me.

Nobody, not even liberals, think the government needs more of their own money or that the government can spend their money better than they can. I guess there’s some sort of communitarian argument for putting more into the common weal but there really isn’t any common weal at this point. And I don’t think the numbers will ever add up. If we tell 3 million people to pony up 40% in taxes we’re still not even close. Above that, and there will be even more net tax payors leaving the country. If we want a balanced budget, we will just have to start repudiating debt. There is no collective will for anything approaching what is needed.

71 msgkings February 13, 2012 at 2:41 pm

A-G, don’t get mad now.

I’m more hopeful that something along the lines of Simpson-Bowles will eventually happen, but I realize that may be too optimistic given our system of democracy.

We don’t really need the budget to balance, we need to get the deficit down to the long run GDP growth rate give or take. And some ‘repudiation’ will certainly be involved, in the form of inflation.

I don’t see what’s so bad about restoring Clinton era tax rates, which didn’t harm the economy much then. We need to reduce spending in addition, especially the future Medicare spending bomb.

Cheer up!

72 bc February 14, 2012 at 7:53 am

actually, revenue was up after the Bush tax cuts. The problem was/is that spending is up more.

73 msgkings February 14, 2012 at 2:10 pm

@ bc:

Not as a % of GDP it’s not. That’s the metric you have to use both for spending and taxes, as it’s a moving target.

74 maguro February 13, 2012 at 3:51 pm

No, the tax is on monocles and top hats. Duh.

75 Floccina February 13, 2012 at 1:57 pm

I would expect companies to reduce dividends and increase stock buy backs. I consider that a negative because it tends to increase volatility and makes it harder for less sophisticated investors to judge companies stocks.

76 MPS17 February 13, 2012 at 2:18 pm

Good. This means a dividend tax — and presumably also corporate income tax — accomplish what one might argue are the policy objectives of imposing such taxes, which are to create incentive for businesses to use their revenues to invest in new products, new markets, or other growth opportunities, as opposed to directly pay shareholders.

Whether this is good or not, given the current climate, is perhaps a more complicated question. Also perhaps one might argue that Obama is not using the tax as an economic incentive, but simply as a revenue enhancer, in which case one might argue he should seek revenues some other way unless he also supports this incentive.

77 msgkings February 13, 2012 at 2:26 pm

Whether you think increasing dividend taxes is a good idea or not, doing so doesn’t lead to any more of the activities you mention.

Companies invest in those things when they see opportunity to do so and make a good return on their capital. If not they sit on the cash like they are doing, or pay some out as dividends, or buy back stock. Changing the tax rate on dividends will at the margin just increase buybacks vs dividends. Which is what the original post we are commenting on stated.

78 The Anti-Gnostic February 13, 2012 at 2:37 pm

This means a dividend tax — and presumably also corporate income tax — accomplish what one might argue are the policy objectives of imposing such taxes, which are to create incentive for businesses to use their revenues to invest in new products, new markets, or other growth opportunities, as opposed to directly pay shareholders.

1. People invest in companies to get rich.
2. Policymakers have no better idea than shareholders where revenues should be invested. In fact, with zero skin in the game they’re no more sapient than the Soviet Central Committee.

79 Norman Pfyster February 13, 2012 at 6:12 pm

Ideally, tax policy would be set up so that it does not distort the investors decision to (re)-invest the income earned on the investment.

80 Bill February 13, 2012 at 2:39 pm

Bank account interest is taxable at OI rates, and dividends are taxed at 15%.

What does that say about who has the most clout in tax policy?

81 msgkings February 13, 2012 at 2:42 pm

Who still pays bank account interest?

82 The Anti-Gnostic February 13, 2012 at 2:55 pm

That was kind of my point too. Who buys stocks for the dividend stream?

I can think of one exception: GM paying $2/share while floating several billion big ones in bonds. When you and I try that, the bank calls the FBI.

83 msgkings February 13, 2012 at 3:34 pm

Well, actually, dividends are HUGE right now A-G. Most income investors have nowhere else to go with CD and cash rates under 1%, so they are investing in blue chip stocks paying 2-5% instead. Stocks pay higher dividends than 10 year Treasuries for the first time in 50 years.

I don’t think we should tax dividends at the same rate as income, nor capital gains. But both rates could rise to 20% IMO.

84 Norman Pfyster February 13, 2012 at 6:05 pm

Ordinarily, I would have said banks, but you’ve convinced me otherwise!

85 FXKLM February 13, 2012 at 6:35 pm

On the other hand, the interest that banks pay is a deductible expense to the bank. If you look at both the payor and the payee, interest is more tax efficient than dividends even when the dividends are taxed at capital gains rates. If dividends are taxed at ordinary income rates, they are horrifically over-taxed.

86 Bill February 13, 2012 at 7:03 pm

Many corps don’t pay taxes, or pay taxes at effective rates lower than the rate of the recipient.

Remember when in the initial round of negotiation on dividend rates the initial Bush proposal that, to the extent the corp paid taxes, the taxable dividend rate would be adjusted.

What they found was that many corps didn’t pay taxes, so dividend rates would be greater than 15%. Then they changed the proposal.

87 The Other Jim February 13, 2012 at 3:37 pm

“No franchise (or office holding) for IQs under 100 I say. Incredibly elitist of me I know.”

No, the word you are looking for is RACIST.

As for increasing the rate of double-taxation of dividends, Barack Obama can go fuck himself. And I say that in the least racist way possible.

It’s just more preening from a dope.

88 msgkings February 13, 2012 at 5:28 pm

Racist? In my world Barack Obama and Clarence Thomas would be allowed to hold office, Sarah Palin and Rick Perry wouldn’t. Unless you meant racist against dumb white people.

89 maguro February 13, 2012 at 6:56 pm

Yeah, but on average far fewer blacks than whites would end up qualified for public office under your standard. it would never pass muster under the disparate impact doctrine and is therefore racist.

90 msgkings February 13, 2012 at 9:46 pm

Man I don’t know how many times I have to say there’s no way ‘my standard’ would ever pass anything. I just wanted to signal that I value high IQ, and prefer politicians and voters to have it. YMMV. Sheesh.

91 Tom February 13, 2012 at 8:48 pm

While Palin is on the borderline, Obama would not have made the cut, if one judges on deeds over rhetoric.

92 msgkings February 13, 2012 at 9:35 pm

I’m judging on IQ. Obama would make the cut easily.

93 Rich Berger February 14, 2012 at 11:48 am

What is BHO’s IQ? What were his grades in college and law school? Has he ever said anything intelligent that he didn’t read from a Teleprompter?

94 msgkings February 14, 2012 at 2:11 pm

Really, Rich?

95 The Original D February 14, 2012 at 6:48 pm

Rich, have you ever said anything you didn’t hear on Fox News first?

96 Ricardo February 15, 2012 at 1:14 am

This meme about Obama not being able to speak intelligently without a teleprompter can easily be laid to rest by, well, watching Fox. Not Fox News, to be clear, but rather Bill O’Reilly’s pre-Super Bowl interview with the President last year which was broadcast live and unedited on Fox to millions of people and is available on Youtube. I don’t care much for O’Reilly or his style but he can hardly be called a sympathetic or softball interviewer and admitted himself that Obama came across extremely well in the interview.

Of course, this will have no effect on those like Rich Berger who appear to live in an alternate reality of some sort but for everyone else, Obama is pretty clearly an intelligent guy and an adept public speaker who is quick on his feet.

97 spencer February 13, 2012 at 4:48 pm

Since WW II stock market returns have increasingly shifted away from the dividend towrads capital gains.

Someone above claimed this increased volatility. How?

But how else is the economy harmed by a shift away from returns in the form of dividends to taking returns more in the form of capital gains?

98 msgkings February 13, 2012 at 5:24 pm

They are shifting back now.

99 Robert February 13, 2012 at 9:08 pm

Obsma is keeping interest rates at 0.1% because he wants to keep house prices propped up, and he hates savers. So people like me look to dividend paying stocks for an income source. But since Obama hates savers with every inch of his being, he wants to get me there, too.

You can’t retire with less than 10 Million anymore, unless you’re a schoolteacher with a fat pension.

100 msgkings February 13, 2012 at 9:48 pm

Yeah, those losers with $9 million are screwed.

101 Ricardo February 14, 2012 at 12:20 am

I’m guessing this is parody but it is increasingly difficult to tell. It could use a Cloward-Piven, Alinsky or Muslim reference to sharpen the impact, though.

102 msgkings February 14, 2012 at 2:13 pm

Poe’s Law is increasingly relevant…

103 Robert February 24, 2012 at 1:14 am

A frugal saver who depends n Dividends for income will be screwed.

Since Interest rates are being hod near zero to keep house prices propped up, many people on fixed incomes reoy on dividends and not interest.

But Barack Obsma hates savers. He wants to punish them. A person who scrimped and saved to have a million dollars in savings is no better off than a typical Obama constituent who saved nothing, declared BK several times, and collects welfare.

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