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January 09, 2003

Double Taxation- Take Two

Well- it turns out that Bush's plan does address the issue of corporate non-taxpayers, not by doing anything to eliminate corporate loopholes but his new plan does in fact deny tax-free status to dividends paid to shareholders when no corporate tax is paid. See this article.

Oh yeah-- and companies that pay no dividends will have a chance to pass on tax benefits to shareholders who sell stock later.

Oh yeah, shareholders in companies like Tyco International that move offshore to reduce their tax bills will not be able to take advantage of these capital gain benefits from reinvested dividends.

Oh yeah, and if the company paying you dividends aren't loopholing on their taxes but are just unprofitable that year, you will have to pay income tax on dividends paid.

Companies that pay dividends would have to inform investors just how much of the payout can be deemed to come from taxed profits earned in 2002 or later. That part of the payout would be tax exempt; the rest would be taxable.
You think doing your taxes is complicated now?

This proposal is full employment for H&R Block; no one with even a small amount of dividend or capital gains income will be able to do their own taxes if this sucker is passed. Just imagine having to note that 75% of this stock dividend's are taxable, but 40% of this other stock dividend is taxable, and god knows how you keep track of this new capital gains benefit, while tracking which companies are going offshore.

I can see this whole proposal dying just on legislators gagging at imposing this complexity on taxpayers.

Can you imagine how pissed small investors will be when they have to spend an extra three or four hours on their taxes, just to gain a $50 additional break? Sort of adding insult to injury.-- not a good idea if legislators have any survival instinct.

Posted by Nathan at January 9, 2003 12:08 PM

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Comments

It's not that bad. Presumably the IRS will require that the 1099-DIV, which companies already issue to taxpayers to tell them how much they have in dividends, will have to divide total dividends into taxable and non-taxable portions. So instead of copying one number from a form to their tax returns, taxpayers will have to--copy one number from a form to their tax returns. Tell me again how this is more complicated?

Posted by: Steven desJardins at January 9, 2003 05:45 PM

Admittedly, the capital gains "retained dividends" part of the plan promises far more complications, but sorting through a new column besides total dividends will not be fun for most tax filers. And for anyone who does any real tax planning, not knowing year to year what portion of expected dividends will be taxed is an extra complication. Add in the Alternative Minimum Tax and middle class taxpayers are headed for meltdown.

What's quite fantastic is that despite all the GOP rhetoric around "tax simplification", they year by year make it more crazy.

Posted by: Nathan Newman at January 9, 2003 06:13 PM

My tone was more argumentative than it should have been. I'm basically in agreement with you on the awfulness of this tax proposal, and you're right that the capital gains part is a bookkeeping nightmare.

Posted by: Steven desJardins at January 10, 2003 08:51 AM

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