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COLUMN from DEAN ALEXANDER: This Installment / Tax Break Distortion

By Dean Alexander

Let us at the outset distinguish between tax breaks which are aimed at increasing business investments and those which have the suspicion of what I will call consumer driven tax breaks or household tax breaks.

At the outset if I have one dollar to give somebody that I know will immediately invest in business and hire new people, I would prefer to give that dollar to that business man who will immediately increase manufacturing output (as an example) and therefore put new people to work. 

The example that I have in mind is investment tax credit. If the law allows credit for business investment, it means a dollar for dollar tax relief. You buy a piece of equipment that is worth a million dollars. If the IRS gives you ten per cent of what you bought, that translates to a one hundred thousand dollar break. This is the type of government interference that possibly enhances the business cycle.

I call these real honest to goodness tax cuts, honest to the purpose and execution. But to give someone money under the guise that he or she is a job creator because we want to cut the tax on dividend distribution is in my opinion outright dishonest.  The recipients of those dividends are individuals and businesses alike.

I must say that I think tax on dividends is no good. It is tax on money that has already been taxed. When it is appropriate we need to abrogate it as abrogating many others if not all. My problem is dishonesty in our narratives and the public discourse.

So we have two problems with our narrative as presented especially by fellow Republicans. One problem lies in the fact that the beneficiary of these tax cuts could be wage earners as well as job creators. To politicize this as being a break just for the job creator and hence improving the economy is a misstatement of the fact and misleading.

The second problem I have with the aim of this tax is that it is not a targeted tax as an investment tax credit. The latter will only be paid after someone has manufactured something and hired someone for that matter. Then we will pay the tax incentives. But to give money away to someone hoping that because of their goodness or the IRS’ goodness they will let go of their dollars now that they have more is sloth and lazy thinking.

I would rather give it to someone who will buy the shirt if I cannot give directly to the shirt maker. At least I have given them the fish if I cannot give them the net to use it for fishing. But a tax cut to someone that is not going anywhere is tantamount to no fish or fishing net. The first order of business is to do no harm. This mindset is a do harm, dogmatic and cold.

Summary: Eliminating tax on dividends as anamolic as it is may not give us the bang for the money as investment tax credit in our state of the economy.