Dividend Tax Reform
Overview of Dividend Tax Reform
The dividend tax reform deals with the taxes that are taken on the dividends provided by the business organizations on their shares. Recently there have been a few demands for changes in the dividend tax structure from the highest levels of the United States' Federal Government.
For example in the year 2001 the American president George Bush has suggested that the federal dividend taxes that are paid by individual shareholders should be removed from the system of taxation.
Purposes of Dividend Tax Reform Proposals
The proposals of dividend tax reform that have been suggested by the president of United States of America are supposed to provide several benefits are as follows:
- Growth in the formation of capital
- Amended administration of corporate entities
- Increased precision in the evaluation of shares
- Better conditions and status for business organizations
Present Rules of Taxation of Dividends
According to the current regulations that are governing dividend taxes, the dividends are subjected to taxes at two levels. The companies that provide dividends have to pay taxes on them before they actually furnish their shareholders with the dividends.
After receiving the dividends from the companies the shareholders pay taxes on the dividends. The tax is normally paid on the basis of normal income tax rules. On certain occasions the companies pay lesser dividends than they might want to.
The main reason behind this is the fact that the retained income is not subjected to taxation at two levels in the United States of America. This is supposed to be an uncomfortable prospect for the stockholders as they are clearly getting less than what they deserve.
Apart from the shareholders the reduced payment of dividends also affects the financial prospects of a company. The basic reason behind this assumption is that the shareholders normally approach a particular company based on their judgment of its economic stability. Such judgments in turn are based on the dividend payment record of the company.
Impact of Dividend Tax Reform
It is being assumed that any dividend tax reform would address the above situation and bring some more clarity to the payment of dividends by companies. This is also supposed to empower the shareholders to a greater extent.