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Pay it forward.(dividend tax cut may be helping economy)
THE evidence is mounting that President Bush's dividend tax cut, enacted last spring, may be stimulating the economy even more than its most ardent supporters predicted.
Proponents of the dividend tax cut argued that it would help the economy grow in two ways. First, taking the maximum tax rate on dividends from 39.6 percent to 15 percent would make dividend-paying stocks more valuable. Second, the tax cut would induce firms to increase their dividend payouts to shareholders. In the wake of the corporate scandals, it was hoped that an increased emphasis on cash dividends would lead to better corporate governance. Bogus accounting can artificially bid up share prices, but it cannot directly put money in stockholders' hands.
It is now beyond dispute that the stock market got a nice bounce from the Bush tax cut. Stock prices have risen on average by roughly 25 percent since it was signed into law. One of the most insightful economists who predicted this surge in the stock market was Donald Luskin of TrendMacrolytics. As Luskin wrote: "Cause-and-effect relationships are nearly impossible to conclusively prove when stock prices are involved. But considering that stock prices are so much higher since the tax cuts, the burden of proof is on the skeptics."
Even more remarkable has been the dividend windfall that America's more than 100 million shareholders have been enjoying of late. In the '90s, we had a corporate culture that interpreted the paying of dividends as a sign of weakness--an admission by management that they could not usefully reinvest their profits. Until last year, Microsoft never paid a dividend, even though the firm resembled a fat mother hen sitting atop a golden egg of $50 billion in cash reserves. Why no payouts? As Thomas Smith, president of Prescott Associates, a Connecticut investment firm, explains: "The tax code severely punished a dividend payout, because the corporation pays a 35 percent tax on the profits and then any dividend payment from those ...
- Senate Republicans Back Bush's Dividend-Tax Cut, But Look to Scale It Back.
- Newspaper article from: Knight Ridder/Tribune Business News May 6, 2003 700+ words
...is ready today to introduce a tax-cut package that includes a version of the dividend tax cut that could change considerably...version that would phase in the dividend tax cut over three years, making it temporary...
- Managerial response to the May 2003 dividend tax cut.(Survey)
- Magazine article from: Financial Management Brav, Alon Graham, John R. Harvey, Campbell R. Michaely, Roni December 22, 2008 700+ words
...the effects of the May 2003 dividend tax cut. We find that the tax cut led...only occasionally mention the dividend tax cut as the reason for an initiation...report that on average, the dividend tax cut had a small to moderate effect...
- How did the 2003 dividend tax cut affect stock prices?(Report)
- Magazine article from: Financial Management Amromin, Gene Harrison, Paul Sharpe, Steven December 22, 2008 700+ words
...the hypothesis that the 2003 dividend tax cut boosted US stock prices and...not find any imprint of the dividend tax cut news on the value of the aggregate...first time since 1990. The dividend tax cut was perhaps the most dramatic...
- Debating 'stimulus' role of dividend-tax cut.(FEATURES)(WORK & MONEY)
- Newspaper article from: The Christian Science Monitor January 13, 2003 700+ words
...One problem with the dividend-tax plan is that it would...programs they favor. The dividend tax cut could cost states...this year. So the tax cut would primarily benefit...though, says of dividend-tax exemption: "It is...
- Dividend tax cut and security prices: examining the effect of the Jobs and...
- Magazine article from: Financial Management Gadarowski, Christopher Meric, Gulser Welsh, Carol Meric, Ilhan December 22, 2007 700+ words
...Q were winners under the 2003 dividend tax cut. ********** In 2003...to respond more vigorously to a dividend tax reduction than dividend-paying...s Q to be more responsive to a dividend tax cut, given that the cost of distributing...
- Economists at Gabelli forum argue dividend tax cut.
- Magazine article from: Fairfield County Business Journal Khasru, B.Z. May 5, 2003 700+ words
...we are. Whitman, who opposes dividend tax cuts, recently talked at a New...Economic Advisers and proponent of the tax cut; Bruce C.N. Greenwald, finance...market meltdown since 2000. The dividend tax cut, he maintained, would help long...
- Dividend tax cut could spur payouts; Companies indicate they'd share the...
- Magazine article from: Crain's New York Business Frederickson, Tom May 19, 2003 700+ words
...their differences over how much of a tax cut there will be, and for how long...late last week. It would halve the dividend tax this year, erase it for three years...Mr. Fernandez says, "this (tax cut) is a gift that would keep on giving...
- The effect of the May 2003 dividend tax cut on corporate dividend policy:...
- Magazine article from: National Tax Journal Brav, Alon Graham, John R. Harvey, Campbell R. Michaely, Roni September 1, 2008 700+ words
...into effect in May 2003. The dividend tax rate for individual investors...According to theory, this tax cut should have led to greater...existing equilibrium. The tax cut might have led these firms...order because the May 2003 tax cut reduced tax rates for individual...
Source: HighBeam Research, Pay it forward.(dividend tax cut may be helping economy)