Plan doesn’t represent classes
COMMENTARY
By Tim Dragga

The current administration’s plan to eliminate the dividend tax does not give significant amount of money back to the lower-middle class, the middle class or the upper-middle class. The cut also isn’t likely to appreciably enlarge the same disposable income required to spur new investment. It only affects those who are currently invested in corporate dividend yielding companies or those who have an income large enough to allow for sufficient investment to see immediate return on dividends alone.

President Bush has stated that part of his motivation for the repeal is philosophical, saying: “The government ought to be content with taxing revenue streams or profits one time, not twice.” However, framing the debate this way is misleading as to the method of taxation.

The government doesn’t tax “revenue streams” it taxes income, on both the business and personal level. Dividends are portions of a corporation’s profit that it chooses to pay out to investors as a business incentive for continued and further investment. When the corporation makes profit it is taxed on that income. When the company then chooses to pay some of that money out to shareholders the money counts as income for the individual investor and is subject to taxation as any other form of personal income would.

There are also questions as to how effectively a repeal will put money into the hands of a majority of Americans. In 2000, the last year in which complete tax data is available, the IRS reports that out of 129.4 million tax filers only 34 million, or roughly 26.3 percent, reported receiving dividends.

Approximately 1.2 percent of those receiving dividends made more than $200,000 a year in personal income. But, that same 1.2 percent collected about 41.1 percent of the $132.2 billion in total dividend income. So, 1.2 percent of the people get 41.1 percent of the money.

Compare this to the 109.9 million people who filed as having a total income under $75,000. Only 20 percent of them report receiving dividend income and they stand to save less than $250 on average should the tax be repealed. Clearly, this is an idea that gives the vast majority of its benefits to a very small selection of people.

Legitimate concerns exist as to whether repealing the dividend tax will spur any meaningful and large scale new investment. While tax free dividends may make that form of investment look more appealing for some, most small scale investors won’t reap any appreciable benefit because most investors have to put up large amounts of money to see any significant return on dividends alone.

A look at the majority of the research on investment selection and dispersion also shows that most people forgo the volatility of the stock market and put their money in less precarious mutual funds and other investment forms.

Too much money is given away to too few people. A more sensible and moderate approach would be to make the first $1,700 made off of dividends untaxable. This means that about 87 percent of investors would pay no dividend tax at all while having the benefit of not losing too much in government revenue to the upper-most brackets.

But, if President Bush is serious about his “philosophical reasons,” a more logical program would be to end the double and triple taxation on Social Security and Medicare.

Tim Dragga is a senior political science major from Lubbock.