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H&R Block, Inc. Message Board

  • arnoldtaxinator arnoldtaxinator Nov 28, 2012 2:26 PM Flag

    Companies Reacting to Tax Law

    I recall the discussion here some time ago in which a number of members argued that companies don't really pay any attention to the tax rates when they decide whether to pay dividends or not. Higher dividend tax rates would not affect the economy, they argued. I wonder what those same folks think about the latest news reports about the massive rush to accelerate divident payments ahead of Jan. 1. Cosco is actually borrowing money to pay a one-time special dividend. But none of this will affect their stock values, right?

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    • How was the economy doing before these special dividend tax rates? Pretty good If I remember. I have a large portfolio of dividend paying stocks. I don't plan on selling these companies paying 4-6% so I can invest in money market at 1-2%. Not to mention that about half these companies are in my 401K and IRA. Also some deal will EVENTUALLY be worked out, and whose to say that dividends won't be a part of it. Economics 101--Don't make major financial decisions based only on tax concerns. World will not end on January 1. (Sorry Mayan fans) Costco will look foolish if they have to pay that loan and dividends are still taxed as before. And yes that might affect their value then. Economic cycles do not depend on tax rates. Plenty of boom times when taxes were higher or raised. (Remember Reagen). Low taxes don't mean prosperity. If they did, We would be living thru the best times in the last 100 years or so.

      • 4 Replies to david4801
      • "How was the economy doing before these special dividend tax rates? Pretty good If I remember." David, you're exactly right. The special rates on "qualified" dividends were part of the Bush tax cuts. Never before had divs been taxed as anything but ordinary income. So for a century investors didn't avoid stocks that paid dividends. Maybe they became more popular when the tax rate was lowered, but that's hard to pin down because around the same time interest rates plunged so people flocked to div paying stocks because at least they had a chance of getting more than .01%. Higher tax rates probably won't discourage them, unless they're content with .01%.

        The double taxation of corporate profits has a long history, but it is clear that Congress has always intended for the profits to be taxed twice. If you're at all familiar with the history of taxation in the US, you know that one big reason the tax code is so complex is that every time Congress passed something, people found a way around it (think partnerships, hands-down the most complex part of the code). Many corps are privately owned. They would often just keep their huge profits so the owners wouldn't get hit with taxes. That's why Congress decided to tax profits at the corporate level. Congress also tried the accumulated earnings tax, to prevent them from just hanging onto their money until the owners died and the heirs got stepped-up basis. Problem was that corps were allowed to accumulate massive earnings if there was "a business purpose." Policymakers had in mind things like acquisitions or product development, but the definition of business purpose was too murky and corps didn't start distributing profits because of it. That tax still exists but I don't think it's changed corporate behavior much (except in the case of Microsoft, which had stockpiled so much money it had to start distributing it).

        Double taxation of corporation profits is there to prevent hanky panky, to keep profits from lingering in corporate bank accounts so shareholders of very profitable companies get off tax-free.

      • I personally think a Dividend should be taxed the same as other income. The Socialist idea of "sticking it to the wealthy" will not work. If you were wealthy why would you want to be victimized by a Government that is openly hostile to you. They can move away from Risk and dividends to Stocks and money market accounts that pay little yield. They dont need the income anyway. Tax revenue will go down with the presidents plan and the average retired investor will be hurt in the process. But rest assured the "Godhead" will be lining up fall guys to hang his failures on.

      • Arnold, I honestly can't remember if we ever had such high unemployment last this long before, and really #$%$ poor investment vehicles of 1% in just trying to shield savings from losses. Add the uncertainty of where the country will head tax wise, with a massive amount of the population collecting government checks, it can be overwhelming in making a decision on which way to go. The elderly can not afford any kind of risk, there is no way back into the workforce for them, and the fear of additional taxes on those dividends could lead to sleepless nights. Many do remember the depression, and many more grew up poor and budgeted very carefully for retirement under the "old" rules. Workers with years ahead of them can afford the risk since they have plenty of time to change their plans and recoup. UNTIL we all know the rules, and can get the country humming again, no one is safe from job losses or 401K losses, inflation rising, while there is talk about higher taxes.

      • Really? I remember that our stock market was closed for nearly two weeks after 9/11/01 and the fear was that our entire economy was in a tailspin after those attacks. That's why the congress voted to lower dividends in 2002, implement special depreciation allowances, and all the rest. Then I remember companies like Microsoft that had never paid dividends suddenly paid huge special dividends. Now it looks like they are flushing as much money to shareholders as possible in advance of the tax raising potentially to over 43% for high income people. And investors won't react to this? Of course they will. And don't forget, the corporate tax has already been imposed on this money so it is already being taxed twice. 35% corporate and then 43% at the individual level? And nobody sees a problem? Amazing. Yes, Costco is run by utter fools who don't know their #$%$ from a hole in the ground. Right.

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