NCPA - National Center for Policy Analysis


November 4, 2004

The positive response to President Bush's dividend tax cut in 2003 suggests that Congress should make it permanent, say Stephen Moore and Phil Kerpen of the Cato Institute.

Last year, the Bush tax cuts included a sharp reduction in the individual dividend tax rate, designed to spur investment and boost the stock market. After one year, the impact has been widely apparent:

  • Annual dividends paid by S&P 500 companies rose from $146 billion to $172 billion -- an increase of $26 billion.
  • Special dividends of $7 billion have been paid, raising the total first-year dividend increase to $33 billion.
  • In sum, dividends have increased 18 percent without special dividends and 23 percent with special dividends.

Furthermore, 22 companies that did not previously pay dividends have initiated regular dividends. Moreover, equity values rose more than $2 trillion after the tax cut.

Source: Editorial, "Many Happy Returns," Wall Street Journal, November 3, 2004; and Stephen Moore and Phil Kerpen, "Show Me the Money! Dividend Payouts after the Bush Tax Cut," Cato Institute, October 11, 2004.

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