Trickle-down redo

Bush to propose eliminating dividend taxes

January 6, 2003

By Scott Lindlaw, Associated Press

WASHINGTON -- President Bush will propose wiping out the taxes shareholders pay on dividends as the centerpiece of his economic revival plan, a step that would cost the Treasury more than $300 billion over a decade.

"It'll encourage investment, and that's what we want," Bush said at the end of a Cabinet meeting Monday. "Investment means jobs."

Bush also argued that eliminating the dividends tax would correct an injustice in the tax code. Dividends are taxed once at the corporate level, when companies report profits, and again as dividend income to shareholders.

First, a caveat - I got a "D" in Economics.  I got "A"s and "B"s in every other one of my business classes (except Accounting, but we'll leave that one alone), so a "D" is a pretty good indication that I just had no real clue as to what was being discussed in that class.  So, when reading my opinion on economic matters, just keep that in mind, and if I'm off base, feel free to correct me (gently, please) as I really would like to understand it better.

The problem I have with Bush's plan is two-fold.  First, didn't we try the "if we let rich people keep their money, they'll invest it and make jobs for the rest of you" tactic under Reagan?  If I recall correctly, Bush's father called that "voodoo economics", and also known as "trickle-down economics", which didn't work so well.  I don't see how it would work any better this time around...

The second is in his theory that because the money gets taxed twice - first as corporate profits, and then as dividend income - that it's unfair.  If that's the case, shouldn't all retail taxes be eliminated as well?  I mean, the money paid to workers is taxed first as personal income, and then taxed again when exchanged for goods and services.  What's worse, in the first example, the corporation shoulders the first tax burden (when its taxed as profits) and the shareholder shoulders the second (when its taxed as divident income).  In the second example, the individual shoulders the entire tax burden - having the income tax taken from their paycheck and sales tax added on to the cost of the goods they're buying.