Monday May 28, 2012

JAPAN NEWS AND DISCUSSION

Obama seeks corporate tax rate cut, loophole limit

World Feb. 23, 2012 - 06:03AM JST ( 5 )

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SushiSake3Feb. 23, 2012 - 07:50AM JST

"Obama’s election-year plan would set a new 28 percent corporate tax rate, still higher than the 25% rate sought by congressional Republicans. Corporations would have to give up dozens of cherished loopholes and subsidies that they now enjoy. Corporations with overseas operations would also face an unspecified minimum tax on their foreign earnings."

Very smart but will the Job Killing GOP sign on the dotted line?
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AlphaapeFeb. 23, 2012 - 10:04AM JST

The President is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today's 15% rate.

Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.

In previous budgets, it was roposed an increase to 23.8% on both dividends and capital gains. That's roughly a 60% increase in the tax on investments, but at least it would maintain parity between taxes on capital gains and dividends, a principle established as part of George W. Bush's 2003 tax cut.

With the same rate on both forms of income, the tax code doesn't bias corporate decisions on whether to retain and reinvest profits (and allow the earnings to be capitalized into the stock price), or distribute the money as dividends at the time they are earned.

Of course, the White House wants everyone to know that this new rate would apply only to those filthy rich individuals who make $200,000 a year, or $250,000 if you're a greedy couple. We're all supposed to believe that no one would be hurt other than rich folks who can afford it.

The truth is that the plan gives new meaning to the term collateral damage, because shareholders of all incomes will share the pain. Here's why. Historical experience indicates that corporate dividend payouts are highly sensitive to the dividend tax. Dividends fell out of favor in the 1990s when the dividend tax rate was roughly twice the rate of capital gains.

When the rate fell to 15% on January 1, 2003, dividends reported on tax returns nearly doubled to $196 billion from $103 billion the year before the tax cut. By 2006 dividend income had grown to nearly $337 billion, more than three times the pre-tax cut level.

Shortly after the rate cut, Microsoft, which had never paid a dividend, distributed $32 billion of its retained earnings in a special dividend of $3 per share. According to a Cato Institute study, 22 S&P 500 companies that didn't pay dividends before the tax cut began paying them in 2003 and 2004.

If you reverse the policy, you reverse the incentives. The tripling of the dividend tax will have a dampening effect on these payments. Who would get hurt? IRS data show that retirees and near-retirees who depend on dividend income would be hit especially hard. Almost three of four dividend payments go to those over the age of 55, and more than half go to those older than 65, according to IRS data. But all American shareholders would lose. Higher dividend and capital gains taxes make stocks less valuable.

Courtesy of the Wall Street Journal.
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SushiSake3Feb. 23, 2012 - 10:14AM JST

"The truth is that the plan gives new meaning to the term collateral damage..."

1/ The truth is America is bankrupt and needs all the money it can get.

2/ You don't raise money by slashing spending as the GOP thinks is possible.
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SuperLibFeb. 23, 2012 - 11:07AM JST

Taxes are hard to pin down these days. I was just reading an article saying the UK's new 50% top tax rate produced lower revenue as people pushed harder to find ways around it. Companies can just file papers and change locations so easily these days that they can hop to whatever area gives them the best rate. Next up you'll see companies suddenly becoming "manufacturers" if that's what gets them the lowest rate. It seems to easy for companies to turn into whatever they need to be to not pay the highest rate.
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OldHawkFeb. 23, 2012 - 01:10PM JST

1/ The truth is America is bankrupt and needs all the money it can get.

2/ You don't raise money by slashing spending as the GOP thinks is possible.

So if you're going bankrupt, you should keep wasting money?