Bush Proposal on Double Taxation

adios · #1 01-10-2003, 06:21 PM

Actually after reading the Wall St. Journal for the past few days it appears it applies to earnings as well as dividends. From what I gather if company A and company B each trade at $50 a share, they each earn $5 a share annually after taxes, company A pays $5 a share annually in dividends, company B retains all earnings, and each stock is held for a year, the tax basis for each company is:

Sale Price for Company A - $50.

Sale Price for Company B - $50 - $5.

It's assumed that each company doesn't have special tax status e.g. they aren't REITs. Doubt if the proposal will get through Congress intact but I wish it would.

Ray Zee · #2 01-11-2003, 12:32 AM

tom, whether it does or doesnt. it is the time to look at div. paying stocks. its a freeroll. if it goes through you pick up say 50% on the div. rate or more as i havent as yet figured what it really will mean totally.
something will pass and it will mean a big return increase for the right stocks. right now i am raising stakes in small stocks that try to increase their div. every year for the stockholders. these companies also arent raided by the management.

MtSmalls · #3 01-13-2003, 12:35 PM

Tom,

I haven't looked at the math in all of this, but wouldn't it make more sense to RAISE the tax basis of company B? I want a higher basis, so less of the gain is taxable, which would be equitable in this sense.

In reality, this is highly unlikely to go through. The tax accounting nightmare for investors would be insane. Think about a Fidelity or Janus trying to get their tax basis right, before the end of the year, to pay the taxable distributions? This would also create a mind-numbing set of arbitrage opportunities in the markets around the end of the year, seriously destablizing prices.

AceHigh · #4 01-13-2003, 10:17 PM

I wouldn't be surprised if it ends up that companies get the tax write off instead of individuals.

I think that makes more sense, and the Republicans might take a big hit if some CEO's etc., are making $50 mill./year (pick a number) in dividends and not paying any taxes on it.