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| The '''dividend tax''' is the ] on corporate ]s. | |||
| == |
== United States == | ||
| In the United States and many other jurisdictions, dividend payments are considered ordinary income and are taxed as such, the same as if the taxpayer had earned the income working at a job. Depending on the jurisdiction, interest income, collected rents, or other "]" may also be taxed. It is the subject of recurring debate as to whether or not these taxes should be eliminated. | |||
| President ] proposed in 2003 to eliminate the U.S. dividend tax. The main argument for its elimination was that it amounts to a "double taxation"—once as corporate profits and secondly as personal income (). | |||
| ===Arguments for abolition=== | |||
| Abolitionists argue that a dividend tax amounts to unfair "]", in the sense that the company has already paid an income tax on these funds. Some even argue for the elimination of all taxes on investment income including ] and ]. | |||
| "] is bad for our economy. Double taxation is wrong. Double taxation falls especially hard on ] people. About half of all dividend income goes to America's seniors, and they often rely on those checks for a steady source of income in their retirement. | |||
| Abolitionists claim that more than half of all wage-earners already pay little in income taxes (not counting social security "taxes") and are "probably" harmed the most by double taxation: a company wanting to raise capital must decide between issuing new debt or issuing new equity; the differing tax treatment encourages the company to issue debt and the company becomes highly ]d. Later during an inevitable ], the company -- not being able to bear the risk of missing an interest payment -- will be quick to ] workers. By comparison, abolitionists claim, a company has more flexibility with regard to dividend payments. | |||
| It's fair to tax a company's profits. It's not fair to double-tax by taxing the ] on the same profits. So today, for the good of our ], and to support capital formation across the land, I'm asking the ] to abolish the double taxation of dividends." (). | |||
| ===Arguments against abolition=== | |||
| Opponents of elimination claim that it is unfair to tax ] generated through active work at a higher rate than ] generated through less active means or that companies may not have paid their full share of income tax. | |||
| Critics argued that eliminating it would have little effect for the bottom 60% of wage-earners, and greatly reduce taxes for the upper 20%; in general, the middle and upper class have money left over to place in long term investments, including stocks. | |||
| ==United States== | |||
| In 2003, President ] proposed to eliminate the U.S. dividend tax saying that "double taxation is bad for our economy... wrong... falls especially hard on ] people". He also argued that while "it's fair to tax a company's profits, it's not fair to double-tax by taxing the ] on the same profits." | |||
| Supporters pointed out that the bottom 60% of wage-earners already pay little in taxes but are probably harmed the most by the double taxation. When corporations decide how to raise their capital, they see that the interest payments on debt are taxed only once while the dividend payments on equity are taxed twice, thus the tax system favors going into ] and becoming highly ]. Highly leveraged companies must layoff or furloough more workers more quickly at the first signs of an economic downturn. The double tax on dividends thus increases the depth of recessions in the ]. It is the bottom 60% of wage earners that suffer more than the "rich" from layoffs and deeper recessions. Given the negative impact of leverage on the business cycle, from a macro-economic perspective, it would be wiser to double tax interest rather than dividends by reducing the deductability of interest. | |||
| ⚫ | |||
| ⚫ | After months of wrangling, the U.S. Congress passed the ] (JGTRRA) that included some of the cuts President Bush requested. He signed the bill on ], ]. Under the JGTRRA, dividends are taxed at a 15% rate for most individual taxpayers. Dividends received by low income individuals are taxed at a 5% rate until December 31, 2007, and are untaxed in 2008. On January 1, 2009, standard ] rates will again apply to dividend income for all individuals. | ||
| ==Canada== | |||
| In ], there is double taxation of dividends, but tax policy attempts to compensate for this through the Dividend Tax Credit or DTC for personal income in dividends from Canadian corporations. | |||
| An increase to the DTC was ] in the fall of 2005 by Liberal finance minister ] just prior to the fall of the Liberal minority government, in conjunction with the announcement that Canadian ] would not become subject to double taxation as had been feared. Effective tax rates on dividends will now range from as low as 3% to over 30% depending on income level and different provincial tax rates and credits. | |||
| == |
== Finland == | ||
| In ], a double taxation will be in use as of ]. Income tax is 29% for a stockowner and the total tax will be around 50%. | |||
| In |
In ], a double taxation will be in use of ]. Income tax is 29% for a stockowner and the total tax will be around 50%. | ||
| == Netherlands == | |||
| ⚫ | In ] there is a tax of 5% on the dividends with no double taxation. | ||
| In the ] there is a tax of 1.2 % per year on the value of the ], regardless of the dividend, as part of the ]. | |||
| In the ], dividends are taxable at special rates and are paid with a notional tax credit that the recipient can then offset against his/her personal income tax bill. The tax credit represents the tax that the company has already paid on the profits represented by the dividend. Although the system is rather complex because of its special 'investment income' rates, the upshot of these and the tax credits is that dividends are not double-taxed. | |||
| == Romania == | |||
| In ] dividends are taxed at the recipient's marginal tax rate (up to 48.5% as at January 2006). Australia has a ] system which allows ]s to be attached to dividends. This allows recipients of franked dividends to impute (or credit) the corporate tax paid by the paying company. A recipient of a fully franked dividend on the top marginal tax rate will effectively pay only about 26% tax on the cash amount of the dividend . | |||
| ⚫ | In ] there is a tax of 5% on the dividends with no double taxation. | ||
| ==See also== | |||
| *] | |||
| *] | |||
| *] | |||
| *] | |||
| ] | |||
| ] | ] | ||
| ] | ] | ||
| ] | |||
| ] | |||
Revision as of 05:27, 5 April 2006
The dividend tax is the tax on corporate dividends.
United States
President George W. Bush proposed in 2003 to eliminate the U.S. dividend tax. The main argument for its elimination was that it amounts to a "double taxation"—once as corporate profits and secondly as personal income ().
"Double taxation is bad for our economy. Double taxation is wrong. Double taxation falls especially hard on retired people. About half of all dividend income goes to America's seniors, and they often rely on those checks for a steady source of income in their retirement.
It's fair to tax a company's profits. It's not fair to double-tax by taxing the shareholder on the same profits. So today, for the good of our senior citizens, and to support capital formation across the land, I'm asking the United States Congress to abolish the double taxation of dividends." ().
Critics argued that eliminating it would have little effect for the bottom 60% of wage-earners, and greatly reduce taxes for the upper 20%; in general, the middle and upper class have money left over to place in long term investments, including stocks.
Supporters pointed out that the bottom 60% of wage-earners already pay little in taxes but are probably harmed the most by the double taxation. When corporations decide how to raise their capital, they see that the interest payments on debt are taxed only once while the dividend payments on equity are taxed twice, thus the tax system favors going into debt and becoming highly leveraged. Highly leveraged companies must layoff or furloough more workers more quickly at the first signs of an economic downturn. The double tax on dividends thus increases the depth of recessions in the business cycle. It is the bottom 60% of wage earners that suffer more than the "rich" from layoffs and deeper recessions. Given the negative impact of leverage on the business cycle, from a macro-economic perspective, it would be wiser to double tax interest rather than dividends by reducing the deductability of interest.
After months of wrangling, the U.S. Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) that included some of the cuts President Bush requested. He signed the bill on May 28, 2003. Under the JGTRRA, dividends are taxed at a 15% rate for most individual taxpayers. Dividends received by low income individuals are taxed at a 5% rate until December 31, 2007, and are untaxed in 2008. On January 1, 2009, standard income tax rates will again apply to dividend income for all individuals.
Finland
In Finland, a double taxation will be in use of 2005. Income tax is 29% for a stockowner and the total tax will be around 50%.
Netherlands
In the Netherlands there is a tax of 1.2 % per year on the value of the share, regardless of the dividend, as part of the flat tax on savings and investments.
Romania
In Romania there is a tax of 5% on the dividends with no double taxation.
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