October 12, 2004
Briefing Paper no. 88
by Stephen Moore and Phil Kerpen
Stephen Moore is a senior fellow at the Cato Institute. Phil Kerpen is a research fellow at the Club for Growth.
Published on October 12, 2004
The centerpiece of President Bush's tax cut in 2003 was a sharp reduction in the individual dividend tax rate. The dividend tax cut was designed to spur investment and boost the stock market by increasing the after-tax return on corporate earnings, thus raising stock valuations. The tax cut also reduced the tax bias against dividends to spur larger payouts to shareholders. That reduces the amount of discretionary cash available to executives and will likely reduce the number of Enron-style corporate financial scandals.
This study examines the impact of the dividend tax cut after one year. We gathered data on dividend payouts before and after the 2003 tax cut for all Standard & Poor's 500 companies. We found a highly positive response to the tax cut:
Stephen Moore is a senior fellow at the Cato Institute. Phil Kerpen is a research fellow at the Club for Growth.
The large and positive response to the dividend tax cut, which is scheduled to expire at the end of 2008, suggests that Congress should make it permanent.
Full text of Briefing Paper no. 88
© 2012 The Cato Institute
Please send comments to webmaster