Tags: Snow | Taxmageddon | economy | us

Former Treasury Chief Snow: ‘Taxmageddon’ a Real Threat

Monday, 14 May 2012 12:17 PM

Former Secretary of the Treasury John Snow says next year's scheduled increases on dividends and capital gains will retard investment and derail the recovery.

"The double taxation of dividends-with corporate earnings first taxed 35 percent at the corporate level and then, when paid out to shareholders, taxed again-has been a long-standing and well-recognized distortion in the tax code," Snow writes in The Wall Street Journal.

"It favors debt financing over equity capital formation, because interest is deducted as a cost of doing business and lowers taxable income, while dividends are taxed twice."

Editor's Note: The Final Turning Predicted for America. See Proof.

The preference for debt financing and leverage shortchanges shareholders and isn't healthy for corporate decision-making, says Snow, plus which double taxation penalizes dividend payments and discourages managements from making them.

Congress substantially ameliorated the dividend tax distortion in 2003 by lowering the dividend tax rate to 15 percent, Snow notes.

Today’s policy makers should remember to "do no harm," Snow says.

“A reversion to the kind of drastically higher marginal tax rates that existed in the past would be bad enough,” he says. “It would only add insult to injury to use the economic crisis as an excuse to raise the tax burden on capital formation and thus reduce the lifeblood of America's job creators.”

Unfortunately, Snow observes, we face that real prospect, as prominent proposals by the administration would triple the top dividend tax rate to nearly 45 percent, while doubling the top rate on capital gains to 30 percent.

“If one intended to cripple job creation, depress stock prices, and lower the value of retirement savings for working Americans, these proposals would be just what we should choose,” he says.

In an open letter to Treasury Secretary Tim Geithner published by Politico, a group of U.S. CEOs wrote: “Dividend-paying stocks offer investors a bright spot in a challenging financial marketplace. The administration’s plan to increase the top tax rate on dividends from 15 percent to 39.6 percent in 2013 will very likely have a seriously disruptive effect on this economic sector, reducing the incentive to pay dividends.”

Editor's Note: The Final Turning Predicted for America. See Proof.

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Monday, 14 May 2012 12:17 PM
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