Wednesday, March 12, 2003

Illusions, delusions, taxes

For weeks, we taxpayers have been subjected to lengthy sales pitches about removing the double tax paid on corporate profits when both the corporation and the stockholders end up paying taxes on the dividends corporations pay their stockholders.

We're told this double tax is unfair, and therein lies a fair amount of baloney.

Let's say a corporation makes a $1000 profit, and Uncle Sam needs $510 of it to cover his expenses.

If the corporation returns its profits to its stockholders, Uncle Sam can impose a tax of 30 percent on the corporation's profit, and then another tax of 30 percent on the dividends. That gives Uncle Sam $510 and it gives the stockholders $490.

The other way of reaching the same result is for Uncle Sam to charge a 51 percent tax on the corporation, and eliminate the second step. Either way, the stockholders get $490. If the amount Uncle Sam really needs is $510, expect the 30 percent corporate rate to go up to 51 percent somewhere down the road.

The interesting part of the exercise comes when there are two stockholders receiving the dividends, let's say a high-income one who is taxed at a 45 percent rate and a low-income one who is taxed at a 15 percent rate. That's close to what the situation is today. If they each get the same dividend amount, Uncle Sam will get the same income, but the high-income taxpayer will pay more tax than the low-income taxpayer.

Under the guise of abolishing double taxation, the proposed new system is setting us up so that, whenever the corporate income tax rates do go up to satisfy Uncle Sam's escalating needs for revenue, the wealthier taxpayers will pay less tax than under the current system and the less wealthy ones will pay more.

All these long, long essays by guest columnists from the think tanks, such as we were fed by The Citizen on Feb. 19, about the virtues of eliminating the tax on dividends, can't disguise the fact that, in the end, wealthy taxpayers are trying to dump some of their tax load on the shoulders of their less wealthy brethren.

One should note, by the way, that people who receive their corporate dividends through IRAs and pension plans will end up paying the double tax since all payments from these plans are taxed. By the time they pay sales tax with what's left, we'll have reached triple taxation.

The proposed elimination of the double tax on corporate dividends should be taken with a big grain of salt. Or at least a yawn.

Claude Y. Paquin

Fayetteville

cypaquin@msn.com