Sunday, March 12, 2006

Taxation of dividend income

To decrease double taxation, we granted dividend a lower tax rate. Had we simply permitted corporations to deduct dividends paid from their taxable income, they could have paid more dividends at no additional cost.

A good portion, if not the majority of investors are not the actual owners of the stock. These individuals invested their retirement funds into tax deferred accounts. They receive little if any benefit from the reduced tax rate of dividends. Their dividend income is not subject to taxes.

Rather than drafting a law that would benefit all stock holders, we were able to grant a much greater tax rate deduction for the wealthiest tax payers, a lesser rate deduction for the less wealthy tax payers, and managed to provide the middle income earners with little or no tax rate deduction.

This devious inequity is simply ingenious. We've managed to reduce our government’s tax revenue, but limit tax relief to only the wealthier investors.


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