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How does the Microsoft special dividend impact the national accounts in the fourth quarter?
On July 20, 2004, the Microsoft Corporation announced that it would pay a special dividend of $3.00 per share to shareholders of record as of November 17, 2004. The total payout, which was made on December 2, 2004, was about $32 billion. The dividend payments affect the fourth-quarter estimate of personal income that was released January 28, and will also affect estimates of corporate profits, national income, and government current receipts that will be released March 30. The December estimate of personal income, which was released January 31, was also affected. The estimate of gross domestic product (GDP) was not affected because the dividend payments do not represent goods and services from current production. Similarly, the estimate of gross domestic income, which in theory should be equal to GDP, will not be affected.
* Personal income increased by the amount of the dividend payments distributed to persons, which appears as personal dividend income in NIPA table 2.1. It is anticipated that most of the additional individual income tax payments that result from the dividend payout will occur during 2005 (either as payments of estimated taxes due in January, or as final settlements that are due by April 15), so any effects on fourth-quarter personal current taxes were assumed to be small. Therefore, disposable personal income increased by about the same amount as personal income. * Profits of domestic corporations will not be affected; the increase in net dividends will be offset by a decrease in undistributed corporate profits (NIPA table 1.10). Profits from the rest of the world -- the difference between (1) receipts by U.S. residents of earnings from foreign affiliates plus dividends received by U.S. residents from unaffiliated foreign corporations and (2) payments by U.S. affiliates of earnings to foreign parents plus dividends paid by U.S. corporations to unaffiliated foreign residents - will decrease by the amount of the dividend payments distributed to nonresidents (NIPA table 6.16D). Consequently, total profits from current production -- the sum of domestic and rest-of-the-world profits - will decrease by the same amount as profits from the rest of the world. * National income will also decrease by the amount of the dividend payments distributed to nonresidents because national income includes only incomes of U.S. residents -- its profits component includes income earned abroad by U.S. corporations but excludes income earned in the United States by nonresidents (NIPA table 1.12). * Government current receipts (and government saving) will increase by the amount of the dividend payments distributed to state and local governments (NIPA tables 3.1 and 3.3) plus any additional current tax receipts for the fourth quarter. * In the foreign transactions accounts, the balance on current account will become more negative by the amount of the dividend payments distributed to foreign shareholders, which will appear as income payments to the rest of the world, less any withholding taxes, which will appear as a reduction in current taxes and transfer payments to the rest of the world (net).