[machinehead]

If you receive over $400 in dividends, you're required to list them on Schedule B of Form 1040. But you don't get any exemption on them. The dividends on Schedule B feed straight into your AGI.

Back in the 1970s, you could receive up to $100 of interest and dividends tax-free. That, and many other tax benefits such as income averaging and deductibility of revolving interest, disappeared as part of the deal to lower marginal rates under Reagan. Then Bush I and Clinton raised marginal rates almost back to where they'd been before. But -- get ready for it -- the deductions didn't come back. Good thing the voters have a short memory, huh?

Making some level of dividends tax-free to individual taxpayers sounds simpler than the current proposal, where each dividend payer must determine the tax-free percentage based on previous years' tax payments. That's just makework for accountants and lawyers.

[Takachi]

Mogambo Guru had the best analysis of the stimulus pkg.

"...Now, if stupid stimulus programs worked without engendering offsetting downside problems down the road, and if all excesses of money and credit did not cause more problems tomorrow than they solved today, well, then okay. But I want to sincerely say, with all the respect and profound humility I can muster for such an idea, is this is the stupidest idea that any stupid person ever cooked up. And believe me, being a real stupid guy myself I have come up with some real stupid ideas in my life, but this eclipses even me at my worst, and is patently, provably stupid stupid stupid. And, with all due respect, any doofus who thinks it WILL work is also stupid stupid stupid, and the short list of these stupid people includes almost everybody in Congress (ex-Ron Paul), and literally everybody at the Federal Reserve, as far as I know. I mean, there MAY be one person working in the mailroom or something at the Fed who ISN'T stupid, but I dunno..."


http://www.dailyreckoning.com/home.cfm

[Bearwithme]

I LOVE the idea of the first $20.000.00 being exempt.

That would bring a more diverse income range into dividend paying stocks, and CEO's would not be getting the bulk benefits of the current proposal which is no more than corporate welfare.

Providing exemptions for companies developing manufacturing here in the states is another great idea.. too bad they didn't think of that one ten years ago.

You guys should run for congress.. Ron Paul needs someone to go to lunch with!

[Jorma]

Most are making the mistake of thinking the dividend proposal represents some sort of economic policy. However the proposal is not about policy it is about politics.

As far as increasing investment we have had 25 years of tax policy changes on the national, state and local level to spur investment and look at the results. Since the decrease in 'productive' investment has been perfectly coincident with tax policy meant to encourage same someday maybe it will dawn upon even the most commited ideolog that something is wrong with this picture. Not only productive investment but actual cash flow profits and most tellingly 'real' GDP growth (as opposed to the hedonic claptrap now measured) have during this period lagged the growth rates of the decades of the 40's 50's and 60's before tax cutting came into vogue.

It's astounding to conceive that when the top income tax rate was near 90% and when dividends really amounted to something and were taxed at those high rates that economic growth happend at all. How can this be?

Well, never mind. If the reality of the efficacy of tax cuts to spur growth is an easily observed failure when looking at the record of the last 60 years I'm sure most will conclude that just one more tax cut will turn the tide.

[machinehead]

"It's astounding to conceive that when the top income tax rate was near 90% and when dividends really amounted to something and were taxed at those high rates that economic growth happened at all. How can this be?"

That's a fair question. Apparently very few actually paid that 90% marginal rate. Although maximum marginal rates have varied from 28% to 90% in the postwar era, federal revenues stayed within a narrow band of around 18% to 22% of GDP.

When marginal rates are high, interest groups lobby for tax shelters. Remember real estate before 1986? You could depreciate a rental property over a fairly short period, usually even front-loading it. You could shelter your rental income from tax, and often some of your other income too.

Remember cattle-breeding partnerships, movie partnerships, oil-drilling partnerships? Investments that made little economic sense were undertaken because they provided up-front tax write-offs, with the possibility of getting the principal back later. Shifting income into the future is almost as good as paying no tax at all.

A broad, simple, economically-neutral tax policy avoids the errors that result from centrally-directed incentives for targeted investments. Everyone gives lip service to a simple tax code, but the political sausage factory assures that it never happens.

I dislike paying sales and property taxes, but they are simple, transparent and predictable. They seem less tainted to me than politicized, manipulated taxes on income.

[SusanJBear]

I think anything that encourages people to be savers would be a good idea, Siggy. Sounds good.

It's outrageous how we are penalized for saving and rewarded for consuming, by being able to consolidate debt through home equity loans, write off the interest paid on taxes, etc.

Nor have I believed people should be taxed for working. There's GOTTA be a better way. But because of all the lobbyists and special interests (I guess what MH calls the political sausage factory) I don't think we'll ever get a simple tax code. I don't see anything happening until an epic financial crisis hits (like the one in "Full Faith and Credit" and the costs for enforcing tax compliance become painfully obvious.

[Jorma]

At risk of hijacking the thread I propose that the lowering of capital gains taxes hase been one of the prime engines of the stock and general financial speculative mania. Furthermore the relentless cutting of corporate taxes has directly led to the tidal wave of corporate malinvestment, corporate governance failures and corporate co-optation of the political process.

The unintended consequenses of tax cutting (to most but not perhaps to its ideological and power hungry authors) is the number one culpret that has produced our current dillema. I wish there was some way to lever this kind of analysis apart from the conventional and so very wrong marrige of taxes with liberal vs conservative political arguement.

The absurd proposition that buying stocks is an 'investment' which will power economic growth is as prelevant now as it was at the height of the bubble. Sometimes out of habit tax cut proponents mention increased savings as a goal but for the most part they do it in the context of buying stocks and other financial instruments as a form of saving. Therefore we now have new proposals to shield stock 'investments' from taxes. The same view is behind the dividend tax cut. Never mind that growth rates during the high tax era dwarfed that of the tax cutting era.

[Hiding Bear]

In the last 21 years, there has been a continous increase in the generousity of depreciation schedules and write-offs for tax purposes (excluding a few years where the Reagan policies were reversed after causing massive deficits). Due to temporary changes in the tax law last year, the effective tax rate on corporations went to nearly zero a year ago (payments about equalled special refunds) for a few months. Although we do not have an investment tax credit, one at this time would make us very close to having a zero rate for corporations. Why bother even having a corporation tax under those circumstances?

I am not advocating any policy here, but if corporations do not want to invest now further reductions in their tax rates may have little marginal effect

[Hiding Bear]

In late 2002, a change in the allowable yearly deduction for capital losses of $8,200+ passed committee and would have passed had Congress actually finished the budget (which was just completed now in the new Congress).

The target this year is for $10000 per year. Since GWB and Congress no longer seem to feel any need to restrain spending, it will probably pass - along with most other popular and even unpopular spending proposals.
As to whether we will be able to efficiently finance those $300 to $400 billion budget deficits as well as Japan, one must hope the us$ does not fall or interest rates rise.