President Bush Signals Readiness To Compromise on Dividend Tax

by Leroy Baker, Tax-News.com, New York

08 April 2003

Reports on Monday indicated that President Bush is seeking compromise on the controversial issue of dividend tax cuts; the centrepiece of his $726 billion economic stimulus package.

White House officials announced at the weekend that the President is prepared to accept a gradual phasing out of tax on share dividends over a period of up to five years. It is thought that this is an attempt to deflect attention from alternative versions of the stimulus plan being mooted by prominent Republicans.

Rep. Bill Thomas, a Californian Republican and chairman of the House Ways and Means Committee has tabled proposals to treat dividends like capital gains. That would mean any asset held for longer than one year would be liable for 18% tax on its profits.

Meanwhile, Senator Bill Grassley, Iowa Republican and Finance Committee Chairman, has put forward the idea of taxing 50% of dividends as a compromise solution.

The White House has reportedly scaled back the overall tax cut package to around $550 billion, although this figure is likely to change after further negotiations with Congress.

The total loss in revenue expected as a result of elimination of dividend tax has been estimated at around $390 billion. Given the current conditions of fiscal deficit, war and a sluggish economy, it is not surprising that the proposal faces an uncertain future.

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