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Who Does Cut On Stock Dividends Impact?

Aired May 22, 2003 - 15:07   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


JUDY WOODRUFF, CNN ANCHOR: Well one of the key provisions in the tax cut package is a cut in the tax on stock dividends. Our Kate Snow looks at who it impacts and how.
(BEGIN VIDEOTAPE)

KATE SNOW, CNN CONGRESSIONAL CORRESPONDENT (voice-over): The president keeps drumming the message.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Ending the double taxation of dividends will help 400,000 people find work by the end of next year.

SNOW: But many Americans may have no clue what he's talking about. Dividends are payments companies make to shareholders, a portion of their annual profits, often just pennies a share. The IRS taxes the company's profits then taxes the dividend paid to the investor, and so...

BUSH: ... the double taxation of dividends.

SNOW: Not every company pays dividends. They've gone out of style. Shareholders told companies to hold on to the cash and reinvest it to keep it away from Uncle Sam. Lots of start-up companies don't pay dividends, but the giants do. Johnson & Johnson, Coca-Cola, GM, and their shareholders tend to be older, many depending on that dividend income. Many of them wealthy.

About a quarter of Americans reported dividend income on their taxes in 2000. Of those families, about 60 percent earned more than $100,000 that year. If Congress lowers the tax on dividends, Democrats like to point out...

REP. ROBERT MATSUI (D), CALIFORNIA: You want to put money into people's pockets who will spend it. And if you give it to people that have dividend deductions, you're basically given it to wealthy people who might invest it in China or some other country.

SNOW: But they may not be the only ones to benefit. With the tax break, economists say stockholders will demand more dividends.

WILLIAM BEACH, SENIOR ECONOMIST, HERITAGE FOUNDATION: That will be good for the economy because that puts money in the hands of investors that will spend it on other stocks or on themselves.

SNOW: Or they might put money in the bank, money corporations can borrow to grow and create jobs. But other economists say it's not that simple.

LEONARD BURMAN, TAX POLICY CENTER: The problem is that the proposal is not paid for. So (UNINTELLIGIBLE) borrowing money to provide this tax break, and that's going to tend to push upward pressure on interest rates, and that would have a negative effect on the same companies you're trying to help.

(END VIDEOTAPE)

SNOW: Who is right? It's very hard to say. Every faction up here on Capitol Hill has a study or an economist that they can point to and say, look, this proves my particular claim. But beyond the dividend tax cut, Judy, there are some other issues in this tax cut plan. Provisions with a clear, direct impact on American taxpayers.

Because of changes to every single income tax bracket for individuals, the money that you have withheld by your employer from your paycheck, less money would be withheld for all taxpayers, as soon as July. Also, 25 million family who would make less than $130,000 in adjusted gross income a year would receive checks this summer, an advance payment on the child tax credit. Most of those families would get $400 per child in those checks, getting those checks this summer.

And there are specific changes for married people as well, to get rid of the so-called marriage penalty, including raising the standard deduction up from where it is now for '03 taxes. Judy, most of these changes take effect right away but go away in only two years.

They did that to keep the cost of the overall package down, of course, but I'm also told by one Republican lawmaker that they did that in part for political reasons. Judy, you can imagine they'll be playing this up on the campaign trail in the '04 election. You can hear the president saying, I'm the one who is going to give you a continued tax cut. The other guy is the one who is going to bring back those taxes -- Judy.

WOODRUFF: Kate, surely you don't mean to suggest that there was any politics in all of this.

SNOW: Never.

WOODRUFF: OK. Kate Snow at the Capitol, thanks very much.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com






Aired May 22, 2003 - 15:07   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JUDY WOODRUFF, CNN ANCHOR: Well one of the key provisions in the tax cut package is a cut in the tax on stock dividends. Our Kate Snow looks at who it impacts and how.
(BEGIN VIDEOTAPE)

KATE SNOW, CNN CONGRESSIONAL CORRESPONDENT (voice-over): The president keeps drumming the message.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Ending the double taxation of dividends will help 400,000 people find work by the end of next year.

SNOW: But many Americans may have no clue what he's talking about. Dividends are payments companies make to shareholders, a portion of their annual profits, often just pennies a share. The IRS taxes the company's profits then taxes the dividend paid to the investor, and so...

BUSH: ... the double taxation of dividends.

SNOW: Not every company pays dividends. They've gone out of style. Shareholders told companies to hold on to the cash and reinvest it to keep it away from Uncle Sam. Lots of start-up companies don't pay dividends, but the giants do. Johnson & Johnson, Coca-Cola, GM, and their shareholders tend to be older, many depending on that dividend income. Many of them wealthy.

About a quarter of Americans reported dividend income on their taxes in 2000. Of those families, about 60 percent earned more than $100,000 that year. If Congress lowers the tax on dividends, Democrats like to point out...

REP. ROBERT MATSUI (D), CALIFORNIA: You want to put money into people's pockets who will spend it. And if you give it to people that have dividend deductions, you're basically given it to wealthy people who might invest it in China or some other country.

SNOW: But they may not be the only ones to benefit. With the tax break, economists say stockholders will demand more dividends.

WILLIAM BEACH, SENIOR ECONOMIST, HERITAGE FOUNDATION: That will be good for the economy because that puts money in the hands of investors that will spend it on other stocks or on themselves.

SNOW: Or they might put money in the bank, money corporations can borrow to grow and create jobs. But other economists say it's not that simple.

LEONARD BURMAN, TAX POLICY CENTER: The problem is that the proposal is not paid for. So (UNINTELLIGIBLE) borrowing money to provide this tax break, and that's going to tend to push upward pressure on interest rates, and that would have a negative effect on the same companies you're trying to help.

(END VIDEOTAPE)

SNOW: Who is right? It's very hard to say. Every faction up here on Capitol Hill has a study or an economist that they can point to and say, look, this proves my particular claim. But beyond the dividend tax cut, Judy, there are some other issues in this tax cut plan. Provisions with a clear, direct impact on American taxpayers.

Because of changes to every single income tax bracket for individuals, the money that you have withheld by your employer from your paycheck, less money would be withheld for all taxpayers, as soon as July. Also, 25 million family who would make less than $130,000 in adjusted gross income a year would receive checks this summer, an advance payment on the child tax credit. Most of those families would get $400 per child in those checks, getting those checks this summer.

And there are specific changes for married people as well, to get rid of the so-called marriage penalty, including raising the standard deduction up from where it is now for '03 taxes. Judy, most of these changes take effect right away but go away in only two years.

They did that to keep the cost of the overall package down, of course, but I'm also told by one Republican lawmaker that they did that in part for political reasons. Judy, you can imagine they'll be playing this up on the campaign trail in the '04 election. You can hear the president saying, I'm the one who is going to give you a continued tax cut. The other guy is the one who is going to bring back those taxes -- Judy.

WOODRUFF: Kate, surely you don't mean to suggest that there was any politics in all of this.

SNOW: Never.

WOODRUFF: OK. Kate Snow at the Capitol, thanks very much.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com