Left wing propaganda is that wealthy investors are getting a free ride at lower CG rate than earned income. It's not true for reason I cited: people need an incentive to put their money at risk. Wealthier people tend to have more money to invest than others, but they are also happy just sitting on it which does no one any good.
Wrong. Guess where wealthy people who don't want to put their cash at risk keep it? They keep it in a bank. The bank keeps 10% of that money (or less) on their books and takes the other 90% and lends it out (i.e., puts it at risk in a business which is borrowing the money most likely to expand). Buying additional shares in an already publicly traded stock does not put any more money in the hands of a company (companies only get the initial payment at issuance). So no we don't need super low dividend tax rates to stimulate the buying of stocks. I'm not going to say that dividend tax rates are right, wrong, too high or too low. Just that investment in our economy is not strongly influenced by these rates. Investment in our economy is mainly influenced by the belief that there is under served demand for a good and service that suggests expansion is a good thing. Companies expand when they think they can get more customers, not on the basis of some marginal tax change. Same thing for stocks for the most part.
Warren Buffett Quote to Follow:
SUPPOSE that an investor you admire and trust comes to you with an investment idea. This is a good one, he says enthusiastically. Im in it, and I think you should be, too.
Would your reply possibly be this? Well, it all depends on what my tax rate will be on the gain youre saying were going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent. Only in Grover Norquists imagination does such a response exist.
Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then.
Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.
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Obviously when you are getting a $300 million stock award, the cash part of the salary at these levels is pretty meaningless. You might as well be comparing these guys on the basis of who has a better parking spot at their respective companies and a better lunch served during their meetings. Both of those factors have a more significant impact on Cook than the cash part of his yearly salary.
