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May 16, 2003
Senate abolishes taxes for shareholders
Make no mistake. Bush got what he wanted. The $350 billion number is bull shit. They only reached that number by limiting the full effect of the plan to three years, when everyone knows it will be next to impossible to "raise taxes" after that time by reversing the cuts instead of continuing them. The same Republicans proposing the "sunset" this time around will be decrying those who dare to take them at their word. This from the Washington Post:
Although negotiations with the House will still be difficult, it appears assured that Bush will secure the third largest tax cut in history, two years after he pushed through the largest, a 10-year, $1.35 trillion tax reduction. It would also come as the government faces the largest budget deficit in history....The Senate bill actually is more generous to corporations and investors than either the House-approved tax-cut package or the president's original proposal - at least until 2007. It would exclude half of all dividend income from taxes this year, then would shield all dividends from taxes until 2007, when the tax cut disappears altogether.
Vowing to tax income only once, Bush had said dividends should be tax-free only if they were paid out of fully taxed corporate profits. But for the sake of simplicity, the Senate bill breaks from that principle. Investors who own shares in corporations that pay little or no federal taxes would pay no taxes at the corporate or individual level.
"This kind of gives the lie to the argument that what this is all about is eliminating the double taxation of dividends," said Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities....
But it doesn't stop there. As the Post goes on to explain:
...the White House and its allies tenaciously pursued a dividend plan more to Bush's liking. It was added to the Senate bill by the narrowest margins last night, when Vice President Cheney cast the tie-breaking vote for a final 51-50 tally. Democrats mocked his vote, saying Cheney had in effect given himself a $107,000 tax break on his own dividend income....Critics say the Senate bill is now $350 billion in name only, because the dividend plan, along with a major small-business tax cut and other provisions will never be allowed to expire, as the bill calls for. If those measures were extended until 2013, the bill's true cost would far exceed $660 billion, and could reach Bush's original $726 billion request, according to the Center on Budget and Policy Priorities.
"It is a measure of how far fiscal discipline has slipped that the Senate would even consider such hocus-pocus in the wake of the Enron accounting scandal," said Robert Bixby, executive director of the Concord Coalition, a budget watchdog group.
A normal yearly dividend for a stock is around one percent of it's value. "The S&P's yield (annual dividend per share divided by share price) shriveled from more than 6% in the early '80s to a minuscule 1.4% last year," according to Fortune Magazine. This means to earn more than $140 of dividend income a year, you would need to have over $10,000 invested in that particular sample of American companies. I don't know about you, but if I had that much, it would be in an IRA or 401K, both of which are already tax free!
Last but not least, this from the Charlotte Observer:
Who's against the Bush plan? Here are some recent critics.• Warren Buffet, the renowned investor who is the second-richest American (behind Bill Gates). He said the Bush proposal would unfairly benefit rich people like himself, at the expense of ordinary workers. The president "is not changing the amount the American public sends the government," Mr. Buffet said, "just changing who does it." The only way to cut taxes is to cut government spending, he added.
• Alan Greenspan, chairman of the Federal Reserve. He likes some of the president's proposed tax cuts, but says unless they're offset by spending cuts or increases in other taxes they will create "long-term structural deficits" that could harm the economy. He says the cuts are not needed for economic growth.
• More than 400 economists, including 10 Nobel Prize winners. They say in a statement that the Bush plan's aim is "a permanent change in the tax structure and not the creation of jobs and growth in the near term." An effective stimulus plan, they say, "should rely on immediate but temporary spending and tax measures to expand demand and it should also rely on immediate but temporary incentives for investment."
Click here for an interesting debate better Paul Krugman and a former Reagan economic advisor from Wednesday. The lead in story has some interesting details about Bush's campaign to get all these tax cuts.
Posted by Mike at May 16, 2003 01:58 AM
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