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

Holder will regret his refusal to obey the Constitution
image 'Flood Wall Street' climate protesters take aim at their corporate allies
image 3 opportunities for better US-India defense ties
image Is Nicolás Maduro Latin America's new man at the United Nations?
AEI on Facebook
Events Calendar
  • 29
    MON
  • 30
    TUE
  • 01
    WED
  • 02
    THU
  • 03
    FRI
Thursday, October 02, 2014 | 9:00 a.m. – 10:30 a.m.
Campbell Brown talks teacher tenure

We welcome you to join us as Brown shares her perspective on the role of the courts in seeking educational justice and advocating for continued reform.

Friday, October 03, 2014 | 12:00 p.m. – 1:00 p.m.
Harnessing the power of markets to tackle global poverty: A conversation with Jacqueline Novogratz

AEI welcomes you to this Philanthropic Freedom Project event, in which Novogratz will describe her work investing in early-stage enterprises, what she has learned at the helm of Acumen, and the role entrepreneurship can play in the fight against global poverty.

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