The Tax Code

Greg Mankiw holds his own views on the Tax Code, but presents a good evaluation of the effects of the Code. Dividend Income before 2003 was not actually taxed as ordinary Income as Greg professes, having long been preferred by special Tax rates. I will simply digress by stating that the Double Taxation argument is fallacious, as Corporation and Stockholder are separate financial entities; I am quite sure Corporations would love the argument that they did not have to pay Taxes, because Resource Miners had already paid Taxes on their materials. Income Tax, if existent, should apply equally to all sources of Income. The question of Incentives equally lacks merit, because it does not actually impact Investment decisions. Income finds Investment or Consumption, as there is little else to do with it; the only Question becoming who will be the initial Investor–the initial Income Earner, or the Retail Profiteer. Actual distortion of the Investment decisions can be attributed to be less than 3%, and the Retail Profiteer actually expresses greater Investment acumen. The Arguments for preferred Tax treatment of Dividend Income lacks some reality.

The probable best Income Tax Code would be to tax all Income equally, then utilize Tax remissions to improve fairness. It can also be shown that Tax remissions of set size will produce the greatest fairness, with the least Income maldistribution. I could accept a Tax Credit of up to $10,000 for Investment, then demand that Income Earners pay their taxes; a position I would suggest that most Investors would oppose, as it would be leaving their already preferred Tax position. My only Counterpoint to their anguish states that the Government should not be in the practice of Investment Underwriting, where Income is given advantage simply because their Income is in excess of normal Consumption. Am I a Communist? I think not, but do believe that Business generation will still occur under full taxation, as long as Tax rates are not so high as to make Government a Profits-sharing partner. People like to proclaim the great Growth of the American economy since the Kennedy Tax Cuts; I like to point out the vast growth of the American economy between 1939-1963, a Time of extremely sharp Tax bites.

The last commentary I would like to discuss is the Question of Retained Earnings. Corporations do like to retain previous Profits, but the secondary taxation of Dividend Income is only an Excuse for a practice which Corporate management desires. The later would retain the Earnings even if Dividend Income taxation was removed–the Greed of Corporate leadership is great, probably the highest of Any in the modern World. There should be a Tax applied to undistributed Earnings, both to protect the Property Rights of Stockholders, and to propel outside finance of Growth projects; with an exterior Review of the Projects to ensure they fall within the same Profits criteria for which the Corporation was originally founded. The Goal should be profitable Growth, not Empire-building to fulfil the personal desires of Corporate management. lgl