Paying dividends?  

Daniel Gross looks at the data on the early effects of the dividend tax cut and sees they're not quite what was advertised.

In the weeks since Congress slashed the tax on dividends to 15 percent, stocks that pay dividends have fared worse than their brethren who stubbornly refuse to share their earnings with shareholders. According to Standard & Poor's, between the beginning of June and mid-August shares of dividend-paying members of the S&P 500 rose 2.5 percent, while shares of nonpayers rose 3.9 percent. And the goose provided by dividends - 2.174 percent annually for payers - doesn't come close to making up the difference.

This is pretty disappointing. The dividend tax cut (or at least, the revenue neutral version) wasn't really about cutting taxes to investors at all - it was about changing the investment culture that led to Enron and other scandals. The idea is that by encouraging investors to seek profits with profitable dividend-paying companies, a tax cut should de-emphasize stock price, making fraudulent attemps to inflate stock prices less tenable.

Why isn't it working? For one thing, it should have been revenue neutral - ie any cut in dividend taxes should have been accompanied by a corresponding increase on non-dividend capital gains tax. But in practice, the cut was part of a massive tax cut package that changed the whole tax environment for investors. This makes it difficult to sort out one effect from another, effectively blurring the line between a targeted securities policy and a general ideological bias toward lower taxes.