NCPA - National Center for Policy Analysis

Glenn Hubbard and the Dividend Tax

January 13, 2003

The driving force behind President Bush's plan to eliminate the double taxation of corporate profits was Council of Economic Advisers Chairman R. Glenn Hubbard, says Bruce Bartlett.

For years, Treasury secretaries have talked about getting rid of double taxation, including the first President Bush's Treasury Secretary, Nicholas Brady; the late Bill Simon of the Ford administration; and Jimmy Carter's Treasury Secretary, Michael Blumenthal. President Carter also supported elimination of double taxation, but never put forward a formal proposal to do so.

But then Deputy Assistant Secretary for Tax Analysis at Treasury Hubbard was the author of a January 1992 report entitled "Integration of the Individual and Corporate Tax Systems: Taxing Business Income Once" (available on the Treasury Department's web site at

After Hubbard returned to Columbia University, he wrote an article entitled, "The Share Price Effects of Dividend Taxes and Tax Imputation Credits," which appeared in the March 2001 issue of the Journal of Public Economics. (The curious can find it on line for a small fee at

  • That article refutes a commonly held view in finance textbooks that double taxation has no effect on share prices.
  • Hubbard proved that taxes on dividends are in fact capitalized in stock prices.
  • Thus it is reasonable to assume that if dividend taxes are removed, as President Bush has proposed, share prices will rise significantly.

Economist John Rutledge estimates that removal of dividend taxes will raise the S&P 500 stocks by 8.5 percent or $800 billion. This would help restore investor confidence, which could finally get business investment back on an upswing. Although there is much talk on Capitol Hill of consumer rebates, consumer spending has lagged little during the economic downturn. The falloff in business investment explains almost the entire decline in growth.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, January 13, 2003.


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