President's Forum Throws Up Tax Reform Proposals

by Mike Godfrey, Tax-News.com, New York

14 August 2002

President Bush held a forum at Waco, Texas, touted as a review of ideas for enlivening the economy. Legislators from both parties were largely excluded, and participants consisted mostly of administration officials and businesspeople. The economic forum consists of eight simultaneous, 90-minute discussion groups on a range of topics including 'Smart investors and retirement security', 'Small business and smarter regulations' and 'Technology and innovation'.

Tax wasn't one of the headings, but in his wrap-up session George Bush singled out ideas floated by Charles Schwab to increase investors' permitted deduction of losses from $3,000 to $20,000, and to reduce the double taxation of stock dividends.

Neither idea is new, and Republicans have been discussing both lately. But with equity markets falling fast, an increase in deductible losses could be expensive, and could have the perverse effect of encouraging selling by under-water investors who might otherwise hold on for a recovery.

The double taxation of stock dividends (at corporate level and again in the hands of investors) has been a long-term target of liberal reformers. It has the effect of discouraging the payment of dividends and focusing the minds of executives on capital growth, which was one of the factors contributing to the stock option-driven technology 'bubble' which has just so disastrously deflated.

The President gave both ideas a strong endorsement. "First of all, I love your ideas about how to account for loss and double taxation of dividends," he said. "That makes a lot of sense."

GOP officials said bills might be introduced soon after the Congressional recess ends in September, although a deductibles limit was likely to be below $10,000.

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