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03-01 "Read My Lips: More New Tax Cuts - The Distributional Impacts of Repealing Dividend Taxation"

By Brian Roach

Abstract

The Bush administration advocates its January 2003 proposal to repeal personal dividend taxation on the basis that the cut would stimulate the economy, primarily benefit American seniors, and eliminate an unfair case of "double taxation." This paper primarily analyzes the proposal using a different criterion - its distributional impacts. Contrary to the administration's claim that seniors receive over half of all dividend income, U.S. Census Bureau data indicate that seniors receive only about one-quarter of dividend income. Dividend income is more concentrated towards high- income tax filers than the distribution of U.S. income as a whole. About two-thirds of dividend income accrues to the top 10% of tax filers. Less than one-fifth of tax filers with adjusted gross incomes of less than $75,000 have any dividend income at all. Also, dividend income is highly skewed by race - only 8% of blacks and 6% of Hispanics receive dividend income.

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