A fairer system for taxing U.S. corporate dividends
Letter to the editor

Article Highlights

  • The fix to the fundamental structure of business taxation should be made immediately

    Tweet This

  • Double taxation of corporate dividends hurts competitiveness of business

    Tweet This

Your editorial "America the Difficult" (Nov. 28) rightly takes up "America's uncompetitive system for taxing businesses." Everybody knows that an important part of this unsolved problem is the double taxation of corporate dividends. This was partially addressed by tax reform under President George W. Bush by reducing the personal tax on qualified dividends to 15%. But dividends are still taxed twice: The corporation first pays a 35% federal income tax on them and then the recipient of the dividend pays again.

Give corporations a tax deduction for all dividends they pay in cash and tax the recipients of the dividends at whatever ordinary tax rates they pay, not at a favored rate. The dividends would then be taxed once, not twice. Dividends on equity would be treated exactly the same as interest on debt. Another important advantage is that this would reduce the incentive for corporations to expand their leverage. This would make for sounder balance sheets on average and remove a significant part of the way the tax code promotes running up debt. It would increase the tendency of corporations to pay dividends which go to all shareholders, instead of doing stock buybacks which give the cash only to selling shareholders. Stock buybacks make companies try to time the market in their own stock-a dubious effort in which their overall record is far from successful.

This fix to the fundamental structure of business taxation should be made forthwith.

Alex Pollock is a resident fellow at AEI

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Alex J.
Pollock

What's new on AEI

Study: Piketty tax plan would boost equality by making rich less rich. But poor would be poorer, too
image Rep. McCaul’s cybersecurity information sharing center: If you build it, will they come?
image Halbig and its aftermath
image Culture of how Washington pays for medical care
AEI on Facebook
Events Calendar
  • 28
    MON
  • 29
    TUE
  • 30
    WED
  • 31
    THU
  • 01
    FRI
Tuesday, July 29, 2014 | 10:00 a.m. – 12:00 p.m.
Is Medicare's future secure? The 2014 Trustees Report

Please join AEI as the chief actuary for Medicare summarizes the report’s results, followed by a panel discussion of what those spending trends are likely to mean for seniors, taxpayers, the health industry, and federal policy.

Event Registration is Closed
Friday, August 01, 2014 | 10:30 a.m. – 12:00 p.m.
Watergate revisited: The reforms and the reality, 40 years later

Please join us as four of Washington’s most distinguished political observers will revisit the Watergate hearings and discuss reforms that followed.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.