Double Talk on Double Taxation

Re “Dividends as Corporate Reformer,” Opinion, Jan. 19: Daniel Yergin is, as usual, correct and straightforward. President Bush, however, as usual, got it wrong for the country but right for him and his.

If the corporation would get a deduction for dividends paid, instead of the government not taxing the dividend in the hands of the shareholder, the corporation could attract capital to increase productivity without incurring more debt. The 401(k) holder would still be untaxed and hold shares in a more productive company. Only the shareholder without a 401(k) would not have as great an advantage, but he also would hold shares in a more productive company. Whether we need more productivity in a period of overcapacity is a separate question.

Anthony J. Van Patten

Glendale

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So Yergin thinks that dividend income should not be taxed because the company paying it has already paid a tax on it. That argument does not make sense on two counts.

First, income is income. If someone makes $50,000 from a salary, he pays an income tax. If he makes a $50,000 profit in a business, he pays income tax. Why should he be exempt if he makes the same $50,000 from dividend income? Such an amount, at 2%, requires the ownership of $2.5 million in stock.

Of the three scenarios listed, the stock owner is likely the most able to pay the tax.

Second, if I buy Yergin’s book with my after-tax dollars, does he think he should be exempt from paying a double income tax on that income? I, and the IRS, think not.

Michael Zapf

Oak Park

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Yergin had it only part right in pointing to distortions caused by the preferential treatment of capital gains versus dividends. The remedy, of course, is to tax capital gains just like any other form of income. Money is fungible; i.e., it can be used for anything. Despite the corporate arguments we have been deluged with, money earned from interest, dividends, capital gains or wages and salaries can all be invested or spent on necessities and luxuries. All contribute to the economy.

Nor is it truly double taxation. Corporations sought and won from the Supreme Court the decision that corporations are individuals and entitled to the same constitutional protections as humans. They can’t have it both ways. Either they pay taxes like everyone else or they are not entitled to the protections of the laws. Individual stockholders are separate individuals and it is income to them, not to the corporations.

Actually, the corporations have fought to have it both ways by getting tax deductions for all kinds of things, from accelerated-expense write-offs to subsidies of various sorts. Now, with the Bush plan, the greatest source of wealth in the country would become virtually tax-free.

Emil Lawton

Sherman Oaks