Dividend Tax Reform



Back in February of 2003, I proposed to an adviser to then-OMB Director, Mitch Daniels (now Governor of Indiana), that Federal dividend taxation be reformed to allow deduction of dividends, as a legitimate cost of equity capital, at the enterprise level. The Bush Administration decided instead to tax dividends at the recipient level at new, lower rates.

The current economic malaise remaining from the 2008 financial crises that required massive Federal "bailouts" of enterprises that had grown "too big to fail" has only strengthened my conviction that dividend taxation must be revisited. Tax inefficiencies of dividend distribution create perverse incentives to retain earnings, which are often subsequently used for diversified growth beyond what is reasonably capable of management.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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