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Taxes on dividends are immoral

Posted: Jan 4, 2013

Does any of you who think dividends should be taxed know that dividends are paid with after tax money? Dividends are what is left over after the company pays its taxes. In some cases, some of the dividends are dividends received by the company from other companies meaning it has been taxed multiple times.

Also, non-weathy retired people rely on dividends in retirement. It is not only the rich that receive dividends. If not for dividends in retirement, retirees would run out of money much more quickly.

;

Why shouldn't dividends be handled like any other money - that circulates through the economy?

[ In Reply To ..]
It gets taxed at every incoming stop it makes and much of it is credited when it's outgoing toward its next destination. When dividends are paid out, they transfer from company to individual, who in turn pays tax on it as income. The only way this could be conceivable construed as double taxation implied in your post would be if the same dividend pay-out to the individual were taxed twice.

Your second point is well taken. Retirees whose income exceeds the 400/450-thresholds will see their dividend rates increase. Those who don't, won't. The differential will be paid by those who can afford it, not those who are at risk of "running out of money." Nothing new here.

Why is it okay that money is taxed every time it moves - a

[ In Reply To ..]
Why are we so okay with the government taking money from everyone? Why do you put so much trust in government spending your money more wisely than you? I am not saying we spend our money wisely, but governemnt is made up of individuals like us that probably also spend their money unwisely. But take away any risk of loss, and the unwiseliness exponently increases. I work for state government. Sooooo much waste. All for "good intentions". Right now the tax is only on 400/450 thresholds. But you just wait. If the spending doesn't get under control, that number will creep down slowly because the taxes collected on above 400/450 is nowhere near enough to elimintate a trillion dollar deficit. When the income tax was first imposed it affected a tiny, tiny fraction of the people. Look at it today. Lastly, dividends are what is left over AFTER corporate taxes. Taxing it again by definition is double taxation.

And once the CORP pay dividends, that INDIVIDUAL - pays INCOME tax.

[ In Reply To ..]
The corp is not the individual. Double taxation only applies to tax on a singular entity.

If money is earned and is taxed twice, then double taxation - a

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So the taxes corporations pay aren't taxes because they are not individuals? The corporation is a taxable entity like the individual is a taxable entity. You make no sense.

Based on your logic, corporations should not pay taxes then.

Dividends are not automatically paid. The Board makes the determination to distribute the money (at least for common stock). If no money is available after taxes, then there is no dividend. The

fail - nm

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Corps who pay dividends and investors who - receive them are NOT the same entity.

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What part of that are you not getting? Look, I know you guys think corps are people too, but this is absurd. I'd suggest you read up on the 1926 SCOTUS decision on this (Bowers v. Kerbaugh-Empire Company), where it was established that "Income may be defined as GAIN DERIVED FROM CAPITAL, from labor, or from both combined, including profit gained through sale or conversion of capital.

That's just lawyer speak in order to enforce tax code - a

[ In Reply To ..]
The tax code is written to maximize the amount of taxes the government collects. You can look at the corporation as a bank account. You can either leave the money in the bank account and it earns interest, or you can take it out and it doesn't earn interest. Dividends are not different than you taking money out of your bank account. As a stockholder, you own that money the corporation holds just as you own the bank account. Leaving it in the company, it can be used to generate more profit just the same as if you left the money in your bank account earns interest. Why are we just sitting back and letting the government determine how much money we have to pay. They are supposed to represent us, not the government.

No, it's SCOTUS speak, which makes it - the law of the land.

[ In Reply To ..]
Feel free to take it up with them.

But that doesn't mean that there isn't double taxation - a

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Just because they write the laws to make it okay doesn't chance the substance of my statement.

Yes, the corp and its owners (investors) ARE The same people - ye gads

[ In Reply To ..]
Let's say you have $1000 dollars to invest. You could put it in the bank and earn some interest on it, and the money is (supposedly) quite safe but you are only earning a small fixed amount a year. So you decide instead to put your money in a company that makes Super-Duper Smart Widgets, an exciting product that could really be the next big thing but could fail spectacularly. So buy 100 shares at $10 a share. Indeed you are taking a risk but the potential is there for a better return on your money, maybe even a very good return.

So the company takes your money and uses it to buy equipment, hire engineers and machinists, lease a factory, etc., and lo and behold the widget sells well, and the company makes a profit, the profit after expenses comes to $.50 a share , which means you as a shareholder of have made a profit of $50. But now Uncle Sam and his state and local nephews take their cuts and your $50 has been cut to $30.00. So when you file your taxes, you will pay tax again, on that $30 you received after already nearly half of it to the govt. (And depending on your tax bracket, that could be pretty steep!) Do you understand now that you are being taxed twice on the same money?

Also, a corporation is a fictional person, but that corporation consists of the real people who own the corporation. This fictional person does have some, but not all of the rights of real people, and most of the responsibilities of a real person. For instance, the corporation as a "person" can borrow money on its own although if the corporation is new or small, the lender may require that the investors/owners personally guarantee repayment. The corporation can also be sued on its own, and is liable if the suit is lost.

However, if the corporation is committed a criminal act, then not only will the corporation will be held financially responsible but the officers of the corporation will be held personally responsible as well, with fines and imprisonment, as they were the ones actually responsible for breaking the law. There is nothing awful or wicked about this "corporate" person. If the people who own the corporation act wickedly, they will be held responsible. (And the rest of the investors are going to be plenty angry at the mishandling of their money.)

Now if you just can't stand the idea of a corporation being a fictional person, and you want the law changed you can certainly work to that end, but be prepared for the ecnomic disruptions that will follow such a foolish idea if you succeed. Ours is not a primitive agrarian economy.

Please just get past your feelings and just be practical. Big business makes big things, and they need to conduct business efficiently, and a corporate "person" is just an important tool that helps get things done.

OMG. Dividends are not earned income. - sm

[ In Reply To ..]

You are confusing earnings with earned income.

http://www.irs.gov/Individuals/What-is-Earned-Income%3F

Taxable earned income includes:

Wages, salaries, tips, and other taxable employee pay;

Union strike benefits;

Long-term disability benefits received prior to minimum retirement age;

Net earnings from self-employment if:
- You own or operate a business or a farm or
- You are a minister or member of a religious order (see Special Rules page for more information);
- You are a statutory employee and have income. (See definition of statutory employee on ourHelpful Definitions and Acronyms for EIT C page).

Nontaxable Combat Pay election. You can elect to have your nontaxable combat pay included in earned income for EITC. The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. Electing to include nontaxable combat pay in earned income may increase or decrease your EITC. See Publication 3. Armed Forces Tax Guide, for more information.

Examples of Income that are Not Earned Income:

Pay received for work while an inmate in a penal institution

Interest and dividends

Retirement income

Social security

Unemployment benefits,

Alimony

Child support.

Your post only addressed individuals not corporations - a

[ In Reply To ..]
Also, I was not speaking in IRS terms. I was using generic terms.

Yes, and by my calculus, an investor reports dividend income on - their INDIVIDUAL tax form. nm

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That's because the tax law makes it a taxable event - a

[ In Reply To ..]
Accounting wise, since it has been taxed once by the corporation, it makes no sense to be taxed again.

Also, laws can and should be changed regarding this.

So, what you're saying is we are already paying VAT taxes? - backwards typist

[ In Reply To ..]
Obama and some democrats wanted to pass the Value Added Tax. What you are saying sounds like the same thing except it's on dividends.

Do you think they will try another pass at VAT this election cycle?

All goods and services include the cost of taxes paid - a

[ In Reply To ..]
All businesses include taxes paid in the cost of their products/services. Just because it isn't called a vat tax doesn't mean we don't have one.

There is at least a $.40 per gallon federal tax on gasoline that we pay every time we fill up. In NY, we also pay sales tax on the tax.

Not really. VAT is a consumption tax on goods and services, - not relative to investments.

[ In Reply To ..]
The increase in the rate of CGT for incomes above the 400/450 threshold from 15% to 20% still keeps it as the lowest maximum CGT rate in the past 63 years. What I don't understand is why this double taxation myth is being resurrected at this juncture. SCOTUS ruled that capital gains are income in 1926 (Bowers v. Kerbaugh-Empire Company). Only the gains are taxed, not the original investment. I don't understand how this represents double taxation.

Whether President Obama will revisit VAT is anybody's guess. To be sure, he modified his tax pledge in 2012 when compared to 2008, from

"....no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”

to

“So if your family makes under $250,000 (which, by the way, 98% of Americans do; 97%of small businesses do) you will not see your INCOME taxes increase by a single dime next year. That’s my plan.”

In 2010 on the subject of VAT, he said, "before I start saying 'this makes sense or that makes sense,' I want to get a better picture of what our options are." I also remember around that same time seeing him mention something about a bipartisan fiscal advisory commission recommendations on how to deal the deficit in an interview. I don't know if the commission has come up with anything since then or not.

It sounds like he is open to the idea and I do think the subject will be explored whenever they get around to tax code "revision", since the GOP platform mentions the possibility of a VAT tax, which I think they tie to an income tax repeal....something I doubt will ever come to pass. I do think a temporary VAT measure may be considered as part of the deficit debates, especially when it comes time to tackle entitlements.

You say potato, I say patato - a

[ In Reply To ..]
If a company has $100 profit before taxes and $90 after taxes, then it has $10 less to return to the investor. $90 is less than $100. I don't see the confusion. The $90 is after taxes, it even says so on the financial statements. Then the investor has to pay taxes on the $90, which means that of the $100 profit, they get less than $90 of it. This isn't a republican issue, this is an issue of accounting. My accounting professors explained to me how this is double taxation. Has nothing to do with political party.

As far as the VAT issue, either way there are hidden taxes in the stuff we purchase.

if a company has $100 BEFORE taxes, it is not PROFIT - ack ack

[ In Reply To ..]
Money before taxes is not profit for goodness sake.

Technically its income before taxes, then income after taxes - a

[ In Reply To ..]
For the sake of argument you are right. After taxes is a separate line item. But the bottom line is, $100 would be available to investors if not for taxes.

no, not "technically" -- literally - sm

[ In Reply To ..]
I am not right "for the sake of argument". I am right for the sake of math. NOTHING is profit until after taxes. Your mythic $100 would NOT be available as dividends to investors, for the $100 is before tax - and does not represent profit. I can't believe you're arguing this. I hope you didn't spend a lot of money on accounting classes.

The taxes are artificial, determined by government - a

[ In Reply To ..]
What if the tax law said you have to pay a tax of $10 every time you took a breath because the tax law said breathing is taxable income? Just because someone wrote a law saying it is taxable doesn't mean it makes sense or make it right. Taxes are artificial and only created through acts of law.

My argument is that taxes are not necessary to run a business therefore, the profit is before taxes and represents what is left after normal operations. You can run a business without taxes, but you can't without human (salaries) and nonhuman capital (factories, equipment, supplies).

Using our argument then the profit would be after deducting the dividends then?

you need to research this... - sm

[ In Reply To ..]
corporate personhood is a complicated doctrine. There are reasons corporations are taxed. As for your example of a breathing tax, you need to remember that the people own the government and can act for change.

Thanks for the explanation...BTW, you do know that - backwards typist

[ In Reply To ..]
no tax is EVER temporary, don't you? ;-)

Well....I think they should get that part of the measure - signed in blood. nm

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Not immoral. Dividends and interest are income and should be taxed. nm - VTMT

[ In Reply To ..]
.

Interest is previously untaxed, dividends are previously taxed monies - a

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There is a difference.

I should pay taxes on my profits. - Thats all folks, nm

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yes, and a dividend is profit - nm

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No! Dividends are what is left over after profits have been taxed - a

[ In Reply To ..]
What accounting classes did you take to come to that conclusion? I am a CPA. Dividends are what is left over after all taxes and expenses have been paid. Dividends can only be paid if something is left over. The IRS calls dividends income but it is really a return of capital to the investor no different than appreciation of the stock they hold.

then you should know better than that - sm

[ In Reply To ..]
you're kidding, right? Dividends flow FROM the corporation TO the individual. Once the dividends are disbursed BY THE CORPORATION to the INDIVIDUAL, those monies represent income to the individual.

That is what you have been brainwashed to believe - a

[ In Reply To ..]
We have been conditioned to believe every time we receive money it should be taxed by the giver or the receiver. What is wrong with you?

Our government discourages families from helping each other out by imposing gift taxes and estate taxes. These monies are after tax monies also, and are being taxed again. Why is that okay with people?

brainwashed?! lol - sm

[ In Reply To ..]
I don't have money coming out of my ears, and I like to be hit just once by taxes, not twice. But you need to make some sense. A dividend is what is left AFTER taxes. It is PROFIT, just like my net salary is profit. I am not taxed on my NET salary, nor is the company paying dividends being taxed on its profits.

You still make no sense - a

[ In Reply To ..]
You just said dividends are left AFTER TAXES. Then the dividends distrubuted from the money left over AFTER TAXES are then taxed again. Then you deny that there is double taxation on that money. Your net salary is AFTER taxes. You seem to be supporting what I am saying.

just washed my brain, can't do a thing with it - sm

[ In Reply To ..]
I can't make it simpler than I said above: I am not taxed on my NET salary, nor is the company paying dividends being taxed on its profits.

In short: A company pays tax on its income. If it chooses to disburse what's LEFT OVER, that money becomes income to someone else.

Oh My..... - opened a can of worms on this one

[ In Reply To ..]
must be bored and needed to stir things up a bit, huh?

I don't think that's really fair - sm

[ In Reply To ..]
The post sparked a lively conversation. I don't think the OP was trying to instigate anything other than debate. If a topic generates interest, I don't think the OP should be held in a negative light.

well this board has never been - and never will be

[ In Reply To ..]
"fair". Most get bashed for posting anything. If I said the sky was blue, there was be 15 posts stating that it was not and I was "delusional", "ignorant", a conservative, a pub, a dem, or any other such nasty term they could come up with. and this was not a "lively conversation" either. most of the posts are just plain bashing.

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