A Dividend Tax Cut for Seniors
March 13, 2003
The biggest winners of ending the double tax on dividends are none other than the nation's seniors.
- While seniors receive about 15 percent of all national income, Treasury statistics show they are the recipients of about 50 percent of the nation's dividend income.
- Half of the 18 million seniors who file taxes receive dividends.
The current system taxes dividends twice -- once at the corporate rate and again after dividends are distributed to shareholders at the individual rate. Changing this double-penalty would free up capital, spur growth, add to stock market stability and inject transparency into corporate accounting.
The benefit to seniors is that they would no longer pay a second tax on income that makes up a significant portion of their retirement funds.
- According to a 1997 Congressional Budget Office report, dividends and interest on average account for 44 percent of seniors' income, compared with only about 6 percent for those under 65.
- Interest and dividends on average make up a greater percentage of seniors' income than do capital gains, wages or other income, and this is even more the case for low-income seniors.
The CBO numbers are from the 1980s, but since seniors traditionally rely on investments and savings more than wages, the basic facts aren't likely to have changed.
Furthermore, seniors will end up paying lower Social Security taxes.
- Currently, retirees must include dividend income in a complicated formula that determines how much of their Social Security income is subject to tax; some seniors pay taxes on 85 percent of their benefits.
- But under the Bush plan, dividend income would drop out of this formula, lowering seniors' overall tax burden.
The Treasury estimates that seven million seniors will receive an average of $1,252 in savings from the President's dividend tax cut.
Source: Editorial, "A Tax Cut for Granny," Wall Street Journal, March 13, 2003.
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