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Dividend Tax Essay

1576 words - 6 pages

A dividend tax is an income tax paid on the earnings from a corporation that is distributed to its shareholders. Dividend payments are treated as ordinary income, and they are taxed as if the taxpayer had earned income through active work. Presently, there is much controversy surrounding the tax. The government taxes dividends twice: It first taxes corporate income, then taxes the same income again when shareholders receive dividends paid out of corporate income. Which is a “double taxation”( http://pages.stern.nyu.edu/~byeung/dividend%20taxation.pdf). The double taxation raises the questions of whether the tax should be eliminated, and which taxes should be cut. With both sides ..., the dividend tax … because…,
The dividend tax was introduced in 1936 by President Roosevelt in the New Deal (Levey). The Economic Growth and Tax Relief Reconciliation Act of 2001 introduced lower dividend tax rates(NATP 2001). On May 23, 2003, President Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003, which gained momentum to passing the tax changes, and was supposed to expire in 2008(NATP 2003). Then on May 17, 2006 the reduced rates were extended an additional two years by the Tax Increase Prevention and Reconciliation Act, into 2010(NATP 2005).
There are two ways used for the purpose of calculating dividend tax, and they are known as qualified dividends and non-qualified dividends. Qualified dividends are stocks held more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. These dividends are taxed at 5 percent if the investor is below the 25 percent personal income tax bracket and 15 percent for investors over it. Non-qualified dividends are dividends that do not meet the criteria above and are taxed at the investor’s standard personal income tax rate. For example, investors in the 15 percent bracket will be taxed 15 percent on the dividends they receive. Currently, as of January 1st 2011, dividends will be taxed at the personal income rate rather than the qualified dividend rate. It should be noted that dividends are distributed after the government has already been allocated its 35 percent corporate tax
Cutting the dividend tax also means more money to the consumer. These cuts will allow more money to be put into the banking system, and have a direct effect on the money multiplier, which would put even more money into the economy. Instead of the economy receiving stimulus packages, a dividend tax cut would give people more disposable income and encourage investment into U.S. companies.
Removal of dividend taxes would allow for investors and retirees to have more spending money. Out of all post-retirees, 50 percent report a dividend tax (Messerli). This is significant because senior citizens, and those still saving for their retirement, would have more discretionary income available. The additional discretionary income could also be used as a way to complement and provide relief for...

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