A few months after President Bush and the Republicans in Congress passed a major reductions in taxes on dividends many companies are beginning to offer dividends to shareholders.
This quarterly earnings season, all eyes aren’t just looking out for signs of surging profit growth. Much attention is being paid to the big jumps in dividend payments, too.
Just two months after the passing of dividend tax cuts, companies are trying to hook investors with promises of more guaranteed cash. Some, including Goldman Sachs and Citigroup, have more than doubled their offers.
That’s a dramatic shift from the recent past, when dividends were dismissed by both investors and companies as the best way to spend corporate dollars.
"Paying dividends seems to be becoming as popular among firms as setting up your own Web site was during the dot-com era of the late 1990s," Edward Keon, a quantitative strategist at Prudential Equity Group, wrote in a recent report.
As more companies offer dividends, more money will end up in the hands of shareholders, fueling more economic growth. It’s the logic of tax cuts in action – if you want to increase ecnomic growth, you remove barriers to economic activity. Moreover, as more companies offer dividends, more investors will recieve these dividend payments. These dividend payments can be reinvested into IRA or 401(k) accounts, or used to pay expenses. Because of the popularity of dividends, it also means that even smaller investors will start to see the benefits of this policy.
Dividend tax relief is working as it was promised to work: it’s creating a climate in which more companies are offering dividends and more investors are taking advantage of them. The result of this activity is increase economic growth which fuels job creation and more wealth creation – something that benefits all Americans.
If tax cuts produce only benefits and no negative consequences as you say, why be satisfied with only one budget-busting tax cut per year? Why not stretch the theory to its limit? Pass a trillion dollar tax cut once an hour on the hour and the spectacular growth that comes from yearly tax cuts will be all the more spectacular, right? You conservatives simply aren’t aggressive enough with your tax cutting, content for trillion-dollar tax cuts only once a year when you should be pushing for them every hour. The vitality of the country depends on you and 24 trillion-dollar tax cuts per day. Don’t let us down!
Pass a trillion dollar tax cut once an hour on the hour…
I have a better idea. Let’s listen to the whiny liberals and up the minimum wage. Make it like… $100/hour. We’ld all be rich!
It’s called the Laffer Curve. There is a law of diminishing returns in terms of tax cuts, which is why the latest Bush tax plan only speeded the implementation of previous income tax cuts rather than waiting for 2004 and beyond. The last package did not reduce marginal rates beyond what was already planned.
The biggest way to increase economic activity is to use tax policy to influence economic behavior, which is why the dividend cuts are working.
Wait a minute here. Either a theory holds up or it doesn’t. If you hit one golf ball or 100, gravity will always pull them to the ground. You can’t say that tax cuts ALWAYS produce surefire economic benefit, but then say the desired result can only happen if it’s done on a certain timetable. Unfortunately for tax-cut ideologues, even the existing model they bow to is a failure, which is why you must sidestep when I suggest testing the limits of your allegedly infallible dynamic scoring theory.
Monkey, the minimum wage hasn’t even come close to keeping pace with inflation over the past 20 years. Everybody understands that increasing it by too much will impair the economy, but only certain people seem to grasp that cutting taxes too much will have a similar devastating effect.
Everybody understands that increasing it by too much will impair the economy
What? In your words: Either a theory holds up or it doesn’t.
Mark: You’re making an ad absurdam argument which has no relation to my actual position. Tax cuts do produce economic gains, so long as they are targeted in the right areas.
This is entirely consistant with what I said on April 29 of this year. To refresh your evidently fickle memory, I stated:
"Tax cuts are not a de facto way of stimulating the economy. Nor are they necessarily a burden to economic growth as the Democrats are arguing." and "What needs to be considered are tax cuts that remove barriers to economic activity."
Nice try, but if you try to mischaracterize my positions, all I have to do is look in the archives.
Monkey, if you’ll notice, I never devised or followed a “theory” on the minimum wage. Just like tax cuts, the positive effects of a minimum wage increase vary depending on the status of the economy, and in tax cuts’ case, the budget. This is my point. Jay’s post was titled “Why Tax Cuts Work”, implying all tax cuts are good and there’s no such thing as a bad time for a tax cut. For those of us living on planet Earth, there are many bad times for a tax cuts, just as there are bad times to increase the minimum wage.
Jay, interesting that you bring up your April 29 post since that concludes there is such thing as an ineffective tax cut, yet today you put forth a post entitled “Why Tax Cuts Work”, as if citing Newton’s Law or the theory of relativity in a science textbook. Reading your post today, it seems that your understanding of tax cuts has regressed since April 29, not that it was credible then either. I remember the foundation of your argument then was tax cuts given to middle-class or lower-class people who would be those most likely to recycle it into the economy would be unproductive, but tax dividend cuts to stockholding millionaires who would put their latest windfall from Uncle Sam into their Swiss bank accounts WOULD stimulate the economy. Virtually every Nobel prize winning economist on the globe vehemently disagreed with this assessment, but you’ve never been one to back down in the face of historical or intellectual evidence completely disproving your fantastical arguments.
Now you’re just reaching….
"Virtually every Nobel prize winning economist on the globe vehemently disagreed with this assessment,"
Except for Milton Friedman, F.A. Hayek, etc…
Tax cuts do produce economic gains, so long as they are targeted in the right areas.
I’ve asked this before, but is that what happened the last time we cut taxes?
You have a lot of faith in tax cuts considering they’ve never worked in recent memory. Maybe the time and money would be better served investiagting the real causes of the economic slowdown, such as rampant unemployment as American jobs head overseas.
Chet, in Republican eyes, the only bad tax cut is one that gives a plug nickel back to blue-collar workers.
I’ll just sit quietly and wait for Chet to call this for what it is: “The True Scotsman Fallacy”.
"You have a lot of faith in tax cuts considering they’ve never worked in recent memory. Maybe the time and money would be better served investiagting the real causes of the economic slowdown, such as rampant unemployment as American jobs head overseas."
Again, the tax cuts of 1960 brought immense prosperity and increased government revenue. The same pattern was repeated in 1984 with the Reagan tax cut which again stimulated the economy and increased government revenues once again. Furthermore, there’s a strong argument to be made that the tax cuts of 2001 helped prevent a larger economic slide.
The problem with using the last round of tax cuts as an example is that it would be an unscientific comparison. The effect of the cuts (many of which had not yet been implemented) would have been erased by the post-September 11 market shocks, the major corporate accounting scandals of 2001-2002 and the concerns over the war with Iraq.
If you don’t think tax cuts work, imagine if the government repealed the tax cuts (which is what Dean and Gephardt have stated they would do). Do you honestly think the stock market would go up? Do you honestly think that employers would hire more people if they knew their tax bill was going to increase by several percent next year?
The obvious answer is no, employers would bunker down even more, investors would hold off on making new investments, and the stock market would drop like a rock.
How many Americans would lose thousands of dollars in retirement accounts then? How many small businesses would go under because they couldn’t get funding? How many more jobs would be lost?
It’s easy to spout slogans about tax cuts for the rich until one starts to consider what the real implications of repealing those cuts would be. Then again, liberals don’t seem to care much for rationally looking at the consequences of policy decisions.
You’re right back to the theory that tax cuts ALWAYS produce benefits without consequence. Yes I know, tax cuts to blue-collar workers who will actually spend their rebate checks rather than save them are “bad, bad, bad”, but any tax cut directed to people who wear ties or skirts to work is fundamentally good for the economy, without exception. This takes me right back to my original point. If tax cuts directed at “spurring investment” always produce the intended result, why are settling for so few of them? Why are running from my trillion-dollar tax cuts every hour of every day proposal? Just think of how you guys are stifling economic growth by not proving your tax cut theories right more often?
…but any tax cut directed to people who wear ties or skirts to work is fundamentally good for the economy, without exception.
Mark, you are not making any sense. There are *plenty* of blue collar workers who make much more money then people who wear ties or skirts to work. My friend’s dad is a union wleder – making $70k. My ex co worker used to construction making ~$60k.
Typical classism. Ya gotta stop waving that red flag around and look at the facts.
Ya gotta stop waving that red flag around and look at the facts.
Oh, have you been presenting facts? All we’ve heard from you are anecdotes.
The fact is, you can have an apartment, food, or health care in this country on full-time minimum wage, but you can’t have all three. If jobs are supposed to be the way out of poverty, why are so many working people unable to afford the necessities of life?
Studies show that short-term gains in the form of tax rebates/cuts have no effect on the long-term finances of either individuals or corporations. Companies are much more likely to respond to decreased taxes by raising CEO salaries (all the while shipping jobs to India) than by hiring and expanding. After all the tax cut has been in place for some time now and unemployment still hasn’t fallen.
Tax cuts don’t stimulate the economy because there’s no such thing as the “trickle-down effect.” What stimulates the economy is domestic employment. People can’t spend what they’re not earning.