Is the Dividend Tax Cut really worth it?

In the article, "The Dividend Tax Cut and Interest Rates", by Mike Moffatt, an interesting point of view is brought to light.(http://economics.about.com/cs/interestrates/l/aa012303a.htm The article talks about President Bush's proposed dividend tax cut which will allow us, as taxpayers, a brake or cut in our amount of taxes that we have to pay in dividends. Normally, dividends are treated the same as income we normally earn, but with Bush's proposed plan those dividends would become tax exempt-we wouldn't have to pay on them anymore. But, do we really understand the effect this will have on other aspects, namely bonds and interest rates? As stated in the article, one of the unintended consequences with the dividend tax cut will be a rise in interest rates in the future. Now I don't know about you, but if you are planning on buying a home or car in the future, that isn't real good news. A lot of hardcore studies haven't been done on just how much this will effect the interest rates, but rest assured that they will be affected. It's hard to say which would be better-no dividend tax, or higher interest rates? I guess it all depends on what boat you're riding in.

1 comment:

Dr. Tufte said...

-1 for a poorly formattted link in Stockton's post (waived)

This is a really good post - too bad the other students didn't notice that and comment on it.

The reason is that it makes clear that a government policy is really a choice involving a tradeoff, and to be fully informed about the policy, you need to consider the tradeoff completely.