Cato Daily Dispatch for December 26, 2002
Subscribe to the Daily Dispatch via email
Subscribe to the Daily Dispatch via PDA (AvantGo)
(Links to outside sources were active as of the date of this dispatch; however, not all news sources maintain links to current stories indefinitely. Some links also may require registration.)
Bush Considers Cutting Corporate Dividend TaxSome Governors Advocating Tax Increases
Seoul Says It Won't Tolerate North Korea Nuclear Weapons Development
Bush Considers Cutting Corporate Dividend Tax
President Bush is considering a proposal to slash taxes on corporate dividends to shareholders as part of a $300 billion tax cut package aimed at shoring up the economy and stock market, Republican sources said yesterday," according to Reuters. "Many of Bush's aides favor a 50 percent cut in taxes on dividends that could cost more than $100 billion over 10 years. Business leaders say it would provide a near-term stimulus by providing an immediate increase in disposable income and encouraging investment in stocks.
"Currently corporate income is double taxed -- once as income and again when it is distributed to shareholders as dividends. Some business groups have urged Bush to eliminate this so-called double taxation. The White House had no immediate comment.
"The proposal is likely to be a critical piece of a broader economic stimulus package expected to total as much as $300 billion. Bush, who will unveil the package next month, hopes to spur the ailing economy in time for his 2004 re-election bid."
In "Cut the Dividend Tax," Senior Fellow Alan Reynolds writes, "As long as reinvested earnings are double taxed by the capital gains tax, it makes sense to tax dividends at the same rate. It also makes sense to provide that relief at the individual level, because too many corporate deductions can leave them with no taxable income against which to write off the cost of buildings and machines. Investors facing a 20 percent tax on dividends would pay more for stocks with a promise of paying good dividends. Higher stock prices, in turn, would make it more attractive for companies to finance new investments by selling stock rather than bonds (or borrowing from banks). In short, the ratio of debt to equity would fall."
Some Governors Advocating Tax Increases
Some governors, facing state budget shortfalls that they say leaves them little choice, find themselves advocating tax increases, reports the Associated Press.
"We have state after state underperforming on the revenue side of the ledger such that there is growing concern and evidence that shortfalls will be plentiful in the upcoming year," said Arturo Perez, a senior fiscal analyst at the National Conference of State Legislatures.
"Critics say there's always an alternative to raising taxes."
Senior Fellow Stephen Moore and Stephen Slivinski of the Goldwater Institute write in "The Good Governors Guide" that state fiscal crises are the "result of excessive spending, not insufficient tax receipts. In the decade of the 1990s state expenditures soared by $176 billion. Between 1996 and 2000, for example, state spending grew at roughly twice the rate of federal spending."
Seoul Says It Won't Tolerate North Korea Nuclear Weapons Development
"South Korea's president said today that his nation would never tolerate North Korea's efforts to develop nuclear weapons, as the communist nation began moving fresh fuel rods to a mothballed nuclear reactor," the Associated Press reports.
"President Kim Dae-jung told a special Cabinet meeting, however, that the standoff should be resolved through dialogue, despite deepening concerns that North Korea will restart facilities that experts say could produce nuclear weapons within months.
"We can never go along with North Korea's nuclear weapons development," Kim said in remarks released to the press by his spokeswoman, Park Sun-sook. "We must closely cooperate with the United States, Japan and other friendly countries to prevent the situation from further deteriorating into a crisis."
Vice President for Defense and Foreign Policy Studies Ted Galen Carpenter writes in "A Nuclear Reaction to North Korea" that options to end the standoff, including salvaging a 1994 framework agreement and persuading North Korea to commit to renouncing nuclear weapons, threatening military action, and imposing economic sanctions are likely to have limited success. Carpenter, however, argues that if North Korea produces nuclear weapons, the United States should let Japan and South Korea decide whether to develop nuclear weapons of their own as a deterrent.
"North Korea's motives for pursuing a nuclear-weapons capability cannot be determined with certainty," writes Carpenter. "But one likely explanation is that Pyongyang believes that it could then intimidate its non-nuclear neighbors -- primarily Japan and South Korea -- into making political and economic concessions. Washington ought to convey the message that Pyongyang is mistaken if it assumes that it will have a nuclear monopoly in north-east Asia."
Jonathan Block, editor, jblock@cato.org