They Haven’t Thought it Through

Ted Barlow is writing about what will happen to tax-free municipal bonds – and the ability of towns, counties and states to raise money – if dividends are no longer taxed. The incentive to buy these bonds goes away! Is this part of the plan to gut our government, or have they not thought this through?

I’m wondering what happens to stocks that are purchased because the value of the stock might go up? These are typically companies that reinvest their profits into their business, and start-ups. These types of companies will no longer be attractive, because you’ll have to pay a capital gains tax when you sell them, and the only way to get your gain is to sell them – where investing in an established, profitable company paying a dividend means you will pay NO taxes.

What does this do to the reason we have a stock market – to provide a source of investment capital for new companies, and companies that want raise money to innovate? Why would you want to purchase a stock that might go UP when instead you can purchase a stock that does not go up, but pays dividends? The implications are enormous!

Update – Thinking more about this… Imagine the pressure there will be from stockholders wanting companies to cancel R&D projects and instead increase dividends!

Here’s a good one – this is an incentive for companies to borrow huge amounts of money and pay it out as dividends. Which brings to mind this scenario – a company’s stock sinks to $1 per share. So they borrow enough to pay a $1 per share dividend and declare bankruptcy! This “no tax on dividends” scam opens up so MANY wonderful doors! And this is with just a few minutes of thinking about it. IMAGINE what kinds of scams and market distortions we’ll see if they pass this!