Everybody’s talking about the Bush plan to cut taxes on dividends and
how this is a giveback to the rich. While it does appear to be that,
I’m not sure it’s the main reason– after all, we’ve seen that GWB has
no problem finding other ways to give money to rich folks– so let’s
examine some other motives.
I think Bush is trying, in a ham-fisted way, to help promote something
resembling corporate responsibility. Earnings and profit numbers, as
we’ve all seen, can be faked or falsified– but dividends can’t. If
ABCDEFGHInc. has to pony up cash every so often, it acts as a pretty
quick check on the company’s viability. If a company doesn’t pay a
dividend, it’s a speculation.
Another possibility– Bush could be trying to promote huge comapnies
giving up large hunks of their cash hoards, and using that to help give
a goose to the economy, without having to take money out of the Federal
till (or by raising taxes and redistributing it. Heresy!) After all,
Microsoft, Cisco, Qualcomm, and Electronic Arts are all companies with
cash reserves in excess of $800 million and no long-term debt. They
probably should be paying dividends. And if it helps control rampant
CEO salaries, I’m all for it.
Bush’s plan, however, does kneecap a lot of companies that don’t pay
dividends– to wit, start up, high tech, and growth companies– in
favor of serious old money corporations that are not exactly what we’d
call nimble. (According to CNN quoting
Multex Investor, only 17.5 percent of technology companies with a
market value of at least $500 million pay a dividend. But more than
half (52.6 percent) of all other companies of a similar size pay one.
Which means that a lot of people will sell off stocks in the kids and
start buying the blue chips– which means that their stock prices will
get a sudden boost. How many of Bush’s friends stand to benefit from
that? (And how many of Bush’s enemies does it hurt?)
I’d love for somebody with a stronger economics background to take a
whack at this. JBrad? Max? Arnold? D-Squared? Anybody?
UPDATE: Silly me. I forgot to include Dreck and Dwight Meredith.