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Tuesday, January 14, 2003

Dividend Tax Permutations-Part I-Krugman's Barnacles-Krugman's riffing on the dividend tax cut today, entitling it "Stimulus for Lawyers". No, try Tax Accountant Full-employment Act if Krugman's liberal fantasy is fully implemented. If they adopt the basic idea of a pure dividend exemption, the tax form won't get that much more complicated. However, the other ideas to allow companies who do plow profits back into the company a reduction in their stockholder's capital gains tax does seem to beg for a trip to H&R Block, for the amortization-type tables that would be needed would give me pause. Please note, before we go further, that there doesn't seem to be anything I've seen come out of the White House that would indicate anything more that a straight dividend exemption. No corporate tax tests. No exemptions for retained earnings. If Krugman and others have a copy of the plan that does, let me know.
A simple end to dividend taxation, then, would be a blatant giveaway to the rich: it would allow some wealthy investors to pay no taxes at all. That's too much, even for the Bush administration.
Where is this "actual plan," Dr. Krugman? I didn't see anything even hinting at that at the White House web site, nor have I seen any concrete versions of this "actual plan." [Update 3:40AM 1/15-here is that plan on the Treasury Department site.] Here's two big problems with Krugman's piece. The first is the meme that it would "would allow some wealthy investors to pay no taxes at all." Take your Central Florida Snowbird. If he gets his retirement income from investments and opts after the law change to put his income fund money into utility stocks rather than bonds, he could easily get into a zero tax bracket. Look for a call from the left to further gunk up the Alternative Minimum Tax to add dividend exceptions to the list. The second trouble spot is Krugman's idea that "[d]ividends will be tax-free only if the company that pays them is deemed to have paid sufficient profits taxes" seems to be begging to set up an AMT for corporations as well [update 12:20PM-Mr. Collins notes that there already is one-sorry, it's been 15 years since I took tax accounting. This would only add to the confusion]. If you have to make the tax code a hundred times as complicated than the basic idea of exempting dividends. then it's best not to pass the bill; that's the liberal's wish. I don't think the final plan will have all those permutations. If it does do things like add dividends exemptions to the AMT or start to impose a de-facto AMT for corporations, that should either be vetoed or filibustered.

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