1. There would be less reliance on net income accounting in determining profitability of a corporation. Dividends now are a small fraction of earnings, and earnings are the prime focus of investors in evaluating stocks. With the focus on earnings, there is a strong temptation to inflate non-cash income in reported earnings, undermining investor confidence and creating volatility in asset prices. An increased focus on dividends would also reduce fraud along with more benign forms of bias in reported earnings.
2. Resources would be invested more efficiently because there would no longer be a tax rationale for hoarding cash.
3. Retirees would draw more income from the dividends on their stocks and there would be less pressure on Americans to save massively for retirement. If dividends are 2% to 3% as they are now, Americans need to save about $2 million to receive $50,000 per year in dividend income. They could obtain additional funds by selling appreciated shares, but buying and selling shares is a fundamentally speculative activity, not an appropriate foundation for retirement planning for a broad segment of society. Doubling the dividend rate cuts the target in half.
2 comments:
How about a flat tax? Period. I am very cynical about using tax policy to "encourage" free citizens or corporations to change their behavior. Using the tax code to punish "undesirable" actions like corporate greed, having children out of wedlock, not having children, being gay, etc.
Thanks very much for you comment!
I agree with you in that I am stongly in favor of trying to simplify the code and would never advocate anything that required filling out any additional forms.
I favor consumption taxes over income taxes because they are invisible and hassle free to most payers. If an air conditioner, as an arbitrary example, is $475 rather than $399, honestly, who cares? The benefits of not having to file would be huge if we're ever lucky enough to get there.
That said, I don't think I'm in favor of a flat tax. Instead of rising from 10% to 39% as your income rises, a flat tax would start at 30% or so and stay there in order to generate the same revenue. So a $20,000 earner would pay $6,000 in taxes, a huge tax for someone earning less than $2,000 per month. Politically undoable, I would think, unless spending comes way down, and the flat tax rate is a manageable 15% or so.
The 20th century saw huge expansion of government thanks to the progressive income tax. Without being able to ratchet up to 39% (or more in Europe or in the past in the US) social security, medicare, and the military would not exist.
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