Abstract

http://ssrn.com/abstract=371300
 


 



President's Dividends Plan Undertaxes High-Income Taxpayers


Samuel C. Thompson, Jr.


Penn State Dickinson School of Law


Tax Notes, Vol. 98, No. 3, January 20, 2003

Abstract:     
The president's plan to exclude 100 percent of dividends from taxation is based on the false premise that taxpayers generally are overtaxed on corporate earnings. Thompson's analysis shows that on average, taxpayers in the highest bracket, 35 percent after implementation of the rate cuts, are currently paying an approximate 35.5 percent effective rate of tax on distributed and undistributed corporate earnings. On the other hand, taxpayers in the 28 percent bracket are, on average, currently subject to an approximate 33.54 percent effective rate. This means that there is a case for dividend relief for taxpayers in the 28 percent and lower brackets, but not for taxpayers in the 35 percent bracket. The president's plan would reduce the effective rate of tax on corporate earnings to no more than 25.68 percent, meaning that on average, 35 percent bracket taxpayers would be under taxed on dividends by 9.32 percentage points. Congress needs to focus dividend relief on taxpayers in the tax brackets where dividends are being over taxed and reject the president's plan for a 100 percent across-the-board exemption.

Accepted Paper Series


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Date posted: January 18, 2003  

Suggested Citation

Thompson, Jr., Samuel C., President's Dividends Plan Undertaxes High-Income Taxpayers. Tax Notes, Vol. 98, No. 3, January 20, 2003. Available at SSRN: http://ssrn.com/abstract=371300

Contact Information

Samuel C. Thompson, Jr. (Contact Author)
Penn State Dickinson School of Law ( email )
150 South College Street
Carlisle, PA 17013
United States
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