Bob's Links and Rants

Welcome to my rants page! You can contact me by e-mail: Blog roll. Site feed.

Wednesday, January 08, 2003

There are so many things wrong about Bush's economic plan, but here's one area where he's clearly being deceptive, not just callously ignoring the poor to benefit the rich. In his speech yesterday he said (I added the emphasis):

We are increasingly a nation of owners who invest for retirement and the other financial challenges of life. One-half of American households own stock, either directly or through pension funds. And we have an obligation to make sure, now more than ever, that American investors are treated fairly. We can begin by treating investors fairly and equally in our tax laws. As it is now, many investments are taxed not once, but twice. First the IRS taxes a company on its profit, then it taxes the investors who receive the profits as dividends. The result of this double taxation is that for all the profit a company earns, shareholders who receive dividends keep as little as 40 cents on the dollar.

Double taxation is bad for our economy. Double taxation is wrong. Double taxation falls especially hard on retired people. About half of all dividend income goes to America's seniors, and they often rely on those checks for a steady source of income in their retirement. It's fair to tax a company's profits. It's not fair to double tax by taxing the shareholder on the same profits.

So today, for the good of our senior citizens, and to support capital formation across the land, I'm asking the United States Congress to abolish the double taxation of dividends.

But the fact is that dividends earned in 401(k)'s will still be taxed when they are withdrawn (usually in retirement), just as they are now:
Today, a senior administration official confirmed that the government would not change the rules and that stock dividends earned in 401(k) plans would indeed be taxed as ordinary income when it is withdrawn. "They didn't get taxed when it was going in," said the official when asked about the issue today. "It all works out in the end," she said. "Trust me." -- from today's Times.

So W mentions investing for retirement as a reason for eliminating dividend taxes, but the truth is that the proposal doesn't benefit 401(k) or other tax-deferred retirement investments like IRA's at all--they will still be "double taxed". The only benefits go to those who have stocks providing current income, who are almost entirely in the top few percent of the population in terms of wealth. And "trust me?" Are you kidding? When the "senior administration official" said "they didn't get taxed when it was going in," she is talking about employee or employer contributions to 401(k)'s, which are not dividends. The fact is that the corporations in which the 401(k) money is invested will pay taxes (at least as much as any corporations do, but that was yesterday's rant) before issuing dividends to the employee's 401(k) account. When the employee withdraws the funds, including those dividends, at retirement, they will be taxed again as ordinary income. It all works out in the end: the rich get richer, everyone else starves.