Subject: Re: back to topic (was Re: a stocks and dividends question)
From: "Benjamin J. Tilly " <>
Date: Mon, 13 Jan 2003 09:21:19 +0500

"Stephen J. Turnbull" <> wrote:
> >>>>> "Benjamin" == Benjamin J Tilly <" <>> writes:
>     Benjamin> If dividends are no longer taxed, while capital gains
>     Benjamin> are, then there will be pressure on companies to issue
>     Benjamin> dividends to avoid capital gains.
> Sigh.  The term "double taxation" really is appropriate; some people
> obviously don't get the appropriate estimate of "tax incidence"
> without that mnemonic.

No it is not appropriate.

When I (a dual US/Canadian citizen) was living in the US
and had Canadian income, having both the USA and Canada
tax my Canadian source income would be double taxation.
But having money taxed at each transaction along a chain
of them is not double taxation.  It is taxation of each
transaction in a series.  The fact is that as money
circulates it does get taxed at each step, and eventually
each dollar will find its way through the government.

> It is not that dividends will no longer be taxed.  It is that _one_ of
> the taxes incurred by dividends will be eliminated.  Thus the tax rate
> will drop dramatically, from the current situation of significantly
> higher than for capital gains.
> Whether (significantly higher + drop dramatically) is higher or lower
> than the current rate on capital gains is not obvious.

It is not at all obvious to me, but for a very different
reason.  For those with the means, it is fairly easy to
convert capital gains into dividends.  Just buy stocks
shortly before the ex-dividend date and sell right after.
Voila!  You get some dividend income and a corresponding
capital gains loss.  Wash, rinse and repeat many, many
times through the year.

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