No benefit to many
There has been much comment recently about taxation of dividends. So far, I have not seen any comment that really shows an understanding of just what is involved here.
Some economists say dividends are being taxed twice: once when the corporations pay taxes on profits at the end of the year and once when the shareholder pays taxes on dividends that are distributed out of those taxed profits. Therefore, so the reasoning goes, a tax on dividends should be eliminated or reduced for shareholders because the money has already been taxed. This reduction in taxes will stimulate the economy and is, therefore, a good thing.
Let's get real. When a person buys stock in a company, he does not expect to have any real influence in how the company is to be run; he buys the shares with the expectation that they will increase in value and he will have more money when he sells the shares at a profit. In other words, he gambles on the stock going up.
If the company incidentally pays a dividend, so much the better. The dividend is unearned income and is categorized as such by the Internal Revenue Service. It must and should be taxed as ordinary income, just as any gambling winnings are taxed as ordinary income. In fact, I believe that capital gains from stock transactions also should be taxed as ordinary income!
And don't forget about all those dividends being paid into IRAs and 401(k)s. They are going to be taxed as ordinary income when they come out anyway. Who has those "tax deferred" accounts? Not the fat cats. They live on the income from thousands of shares of a company. The little guy may have a few hundred shares; what real benefit does he get from a tax reduction?
If Bush & Co. want to use dividend tax reduction as an economic stimulus, why not let the corporations pay dividends out of pre-tax profits? The tax on the remainder will be lower; the company will pay less in total tax and have more money to use to create jobs! (Yeah, like that's going to happen.)
In case you don't see where I am going with this: I think a tax reduction on dividends is an administration attempt at selling snake oil. It is a gift to the rich at the expense of the middle class.
IRVING SELSLEY
Pleasant Hills
Creating a nightmare
President Bush's tax proposal is an accounting nightmare ("Bush Wants More Big Tax Cuts," Jan. 8). Just determining what dividends are nontaxable or partially taxable is one enormous obstacle, but only the tip of the iceberg in a sea of confusion. In the proposal, there is also a capital gains break that is a form of dividend exclusion.
If a company, such as Microsoft, doesn't pay dividends but has profits that it pays tax on, then its shareholders will be entitled to make an annual adjustment to their basis. A stock owner's basis will ultimately determine whether there will be a gain or loss when the stock is sold. Each year, stockholders will be able to increase their basis by a portion of the amount of profits that the company actually paid tax on.
If the company didn't pay any taxes, then there may be no adjustment to the basis. The special rules for many different types of entities and individual companies will be a lobbyist's dream. What if there are tax credits involved?
There are already exceptions mentioned in the proposal. This proposal will add enormous complexity to the Tax Code that will muddle both corporate and personal planning and tax preparation.
Sen. Joe Lieberman said, "I have yet to hear a convincing argument that the core of the plan, the elimination of the tax on dividends, will create one new job." He obviously wasn't thinking about all the accountants and tax lawyers needed to manage this Pandora's box.
JAMES LANGE
Squirrel Hill
Editor's note: The writer is a certified public accountant and lawyer.
Nation needs the money
The Jan. 8 front-page headline shouted "Bush Wants More Big Tax Cuts." Does President Bush not realize that his new Department of Homeland Security, as well as his war on terror and Iraq, among other things, are going to cost this country billions of dollars? But we will get our tax cuts and rebates. Now, how does that make sense?
Funding for all of the new federal offices and the enormous Department of Defense budget have to come from somewhere, namely our taxes. However, at the rate Bush is going, there will not be any taxes left to support these offices. The only thing we taxpayers will be left with in the future is higher taxes and cuts on federally funded projects.
My suggestion to President Bush is to quit looking for ways to gain the American public's support by tax rebates and cuts and to start using all of our tax money effectively so that the next president in 2004 isn't welcomed to the White House by a mountain of unpaid debts.
DANIELLE BARTKUS
Uptown
E-mail this story 
