Bob's Links and Rants

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Wednesday, January 08, 2003

W''s proposed dividend tax elimination hurts states twice:
The states fear they will lose in two ways. Because state income tax laws are tied to the federal law, the states will also stop taxing dividends. In addition, the removal of taxes on dividends makes stocks a more attractive investment vehicle than the traditionally tax-free municipal bonds. Over all, the officials said the potential losses far exceed the $10 billion in state aid included in Mr. Bush's 10-year plan, much of which is earmarked to help the unemployed. -- from the NY Times.

My suggestion to the states: Immediately implement your own dividend taxes, independent of federal taxes. Tax dividends from foreign or off-shore based corporations at 80%, and US-based corporations at 60%. The 60% could be reduced by the amount of income taxes collected by the state from employees of those corporations. For example, K-Mart is a Michigan-based company, with several hundred probably decently-paid employees at their headquarters in Troy, and a few thousand low-wage employees at numerous stores and warehouses around the state. Michigan K-Mart stockholders would pay 60% taxes on their dividends. Then, after April 15, the state would total the amount of state income taxes collected from K-Mart employees and refund all or some portion of it to the stockholders, thereby reducing or even eliminating the 60% tax. This would be a huge incentive for Michigan investors to invest only in companies which not only employ lots of people in Michigan, but also pay them well. It would also say to Ford and GM that if they want to move any more of their operations out of Michigan, they will have to answer to a large base of Michigan investors who will have their taxes go up (including the corporate executives who own lots of stock).