January 21, 2003
Doubling Up of Taxation Isn't Limited to Dividends
By DANIEL ALTMAN
"Double taxation," President Bush said in introducing his proposal to end the personal tax on dividends, "is bad for our economy. Double taxation is wrong."
Corporate dividends, however, are not the only kind of income that is taxed twice. Other taxes create a double, triple or even quintuple burden. And unlike the double taxation of dividends, which mainly affects the wealthy, the burden of other forms of multiple taxation — sales taxes, import taxes, payroll taxes, among others — often falls most heavily on poorer Americans.
These taxes may not be associated with inefficiencies in the capital markets, but can still take a hefty bite out of paychecks and reduce the incentive to work. Democrats and a few Republicans outside the White House have proposed cutting at least one of those taxes, but no one is talking about eliminating them altogether.
The double tax on dividends is really a double tax on corporate profits. The federal government taxes companies' profits and then taxes the money again when it passes to shareholders as dividends. The double tax affects about 54 million Americans. Economists agree that it also gives companies an incentive to issue debt — with the interest counting as a pretax cost — rather than equity.
Multiple taxes also affect the other 236 million Americans who would see no immediate benefits from elimination of the tax on dividends. For example, import tariffs, sales taxes and federal and state excise taxes can add to the price of a product.
Nearly all such taxes are extremely regressive, said John S. Barry, the chief economist of the Tax Foundation, a nonprofit educational group. Low earners spend a larger share of their income on alcohol, gasoline and tobacco, as well as inexpensive imported textiles and manufactured goods, than high earners do. ...
<http://www.nytimes.com/2003/01/21/business/21DOUB.html>
Carl
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