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Tax on Dividends - Lower Capital Gains

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The applicability of the lower capital gains rates to qualified dividends, enacted on a temporary basis in 2003, was made permanent in 2013. There was considerable debate surrounding the desirability of making the reduced rates permanent. Search the Internet for arguments for and against extending the reduced rates on dividends for individuals. Summarize the arguments made on both sides. Which side do you agree with? Why?

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Solution Summary

This posting gives you a step-by-step explanation of impact of lower taxes on dividends paid to individuals. The response also contains the sources used.

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Step 1
Arguments for extending reduced rates to individual dividends. The first argument is that lower taxes for dividends offset the taxes that have already been paid at the corporate level. The argument is that corporate earnings are already taxed at the company level. The main argument is that to avoid double taxation, there should be lower taxes for dividends. The second argument is that lower tax rates for dividends increase growth, encourage risk-taking, and investment in shares by individuals. The third argument is that lower taxes for dividends help reduce the effects of inflation.
The point is that dividend are double taxed with the result that the US tax system is biased against corporate equity and this has the potential of destabilizing the economy. Further, ...

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