> But I'm sure I'm missing something.
>
>
This is oversimplifying, but - taking tax out of consideration for a company that is thinking about what to do with retained earnings is ridiculous. It's kind of like saying -
if you use stock as any form of currency - for compensation, incentives, mergers, collateral or buying tractors - the value of that stock + dividend just went up because the dividend isn't taxed, so by all means reduce your retained earnings by a hefty dividend precisely when you need the dough for other things the most.
under the latest twist of this proposal, because all the companies that don't even pay dividends out of their retained earnings (or profits) started whining - hey, what about me? - they would get to inflate the currency value of their stock just for thinking about offering dividends out of retained earnings.
either way, it's easier for a company to manipulate taxable earnings as a component of profits and pay less taxes.
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