Tax changes

Also, I agree with you that stock dividends shouldn’t be taxed as personal income; I also think there should be a way to use cash dividend income to immediately reinvest in the company (by buying more shares of the same) and be able to write it off that way. In that sense, instead of cash, you would be choosing to increase your percentage of company ownership (i.e. equity in what’s left after dividends are paid) relative to shareholders who don’t do the same thing.

I suspect you will be unsatisfied with that because I place a higher value on SCOTUS’ opinion that it remains personal income than I do on yours that it is not.

Quote: Mission146

From Investopedia:



Crucially, Investopedia agrees with me that this can happen because of corporations being separate legal entities from their shareholders, regardless of whether or not you think they are.

Anyway, it works exactly as I said. (Insert source of revenue) is the source of the corporation’s income, then when the corporation pays out the dividend, the corporation is a source of income for the individual. Investopedia says exactly that. The only difference is they call it double taxation because the primary source of income (whatever the business does to make money) is the same. However, those are two different types of income; one is corporate income and the other is personal income; ergo, two different sources of income. Two totally different categories of income, in fact.

The legal entity is different for limited liability and ease of sale. But the investor owns that legal entity, so the income is one and the same.

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The Supreme Court of the United States held, in the link above, that even additional shares paid as a stock dividend are taxable personal income. Why? Because they are a capital gain, and constitute personal income pursuant to the 16th Amendment. Naturally, the case I linked above also references the case in which it was decided that cash dividends are personal income.

I am a touch confused as wikipedia says Eisner v. Macomber states that stock dividends are not income as they are nothing more than a stock split. We are not talking stock dividends, which are kind of pointless.

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I guess what I’m saying is that if you disagree with me that it’s double taxation (thus, unconstitutional) in the legal sense, then you can prove me wrong by suing the Government, appealing it all the way to the Supreme Court (because you’ll lose in every court along the way) and then have the Supreme Court declare taxation of stock dividends to be illegal under the Sixteenth Amendment.

Legally allowed does not mean that it is not double taxation. I am not arguing that it is not "allowed" as tax code says it is. I am saying it is pure double taxation, plain and simple. Slavery was at one time allowed, but it was still slavery. Congress has from time to time talked about eliminating taxes on dividends, so I am not at all alone in realizing this.

Quote: AZDuffman

The legal entity is different for limited liability and ease of sale. But the investor owns that legal entity, so the income is one and the same.

I am a touch confused as wikipedia says Eisner v. Macomber states that stock dividends are not income as they are nothing more than a stock split. We are not talking stock dividends, which are kind of pointless.

Legally allowed does not mean that it is not double taxation. I am not arguing that it is not "allowed" as tax code says it is. I am saying it is pure double taxation, plain and simple. Slavery was at one time allowed, but it was still slavery. Congress has from time to time talked about eliminating taxes on dividends, so I am not at all alone in realizing this.

The income is not one and the same; the source of the initial revenues that created income (for the corporation) some of which was paid out to shareholders (by the corporation) is the same. If you want corporations to be legally distinct from the shareholders, I’d think it obvious enough that such can’t happen only when it benefits both for such to be the case. They can’t choose when to be considered legally distinct and when to be considered the same thing.

Anyway, it’s two different categories of income, from two different and legally distinct sources, that don’t even get taxed at the same rate.

It’s also totally optional; corporations aren’t forced to pay dividends.

I agree that stock dividends seem largely pointless. I just didn’t feel like typing another case because I’m using my phone right now. The case in which SCOTUS held that cash dividends are personal income and can legally be taxed is cited in the one I linked to.

Maybe Congress will do that and declare it to be double taxation. If they do so, then the two of us will be in agreement because that would change my position on the matter. In the meantime, I see the tax code’s logic that the income source is not the same because they are two distinct legal entities. The (way business makes money) is the initial source of revenues that result in net income to get hit with corporate income tax; after that, the corporation is the source of the income to its shareholders that gets hit with personal income tax.

Thus, it’s ‘one’ revenue source, but two income sources. It can only be two income sources because they’re two totally different types of income.

Quote: Mission146

The income is not one and the same; the source of the initial revenues that created income (for the corporation) some of which was paid out to shareholders (by the corporation) is the same. If you want corporations to be legally distinct from the shareholders, I’d think it obvious enough that such can’t happen only when it benefits both for such to be the case. They can’t choose when to be considered legally distinct and when to be considered the same thing.

Anyway, it’s two different categories of income, from two different and legally distinct sources, that don’t even get taxed at the same rate.

But you own both sources. The legal distinction should not matter. Just taking money from one pocket to the other.

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It’s also totally optional; corporations aren’t forced to pay dividends.

Many don't because of the double taxation issue. Tax wise you are far better to pay the (hopefully) lower cap gain tax. This is what the Warren Buffets of the world do. Though he is a hypocrite, using tax law to minimize his own taxes then saying the rates should be higher, but that is another story. SF/PHI just made my over, which I could not believe I could get in game!

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I agree that stock dividends seem largely pointless. I just didn’t feel like typing another case because I’m using my phone right now. The case in which SCOTUS held that cash dividends are personal income and can legally be taxed is cited in the one I linked to.

No need to ovderdo as I have been looking at numbers all day and can only read so much.

Quote: AZDuffman

But you own both sources. The legal distinction should not matter. Just taking money from one pocket to the other.

Again, you can't have corporations be legally distinct, and separate, from their shareholders only as it's beneficial to do so; they are either legally distinct and separate, or they are not.

In terms of an equitable solution, this is what I think would be equitable:

Congress passes a law that declares the following:

1.) Corporations determine what their net income would be, but for an amount committed to retained earnings specifically for the payment of dividends.

2.) The amount committed to dividends gets reduced from the corporation's net income, thus, their taxable obligation is reduced accordingly.

3.) The dividends are paid out to the shareholders; the shareholders are still liable to pay personal income on that and deductions to be taken against that personal income are limited to those that already exist, such as interest paid on borrowed investment capital.

Ergo, taxes on that revenue would only be paid once and it would be by the shareholders who receive the dividend payouts.

I think this is a reasonable compromise.

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Many don't because of the double taxation issue. Tax wise you are far better to pay the (hopefully) lower cap gain tax. This is what the Warren Buffets of the world do. Though he is a hypocrite, using tax law to minimize his own taxes then saying the rates should be higher, but that is another story. SF/PHI just made my over, which I could not believe I could get in game!

I agree that many corporations likely do not pay dividends for that specific reason. I think if dividend income was taxed only as personal income (per my suggestion above), that many corporations would still opt not to pay dividends because the individual shareholders might wish not to have personal income taxes paid on that and would vote accordingly.

I'm not convinced that Warren Buffet is a hypocrite. Just because something is a way different from how he claims to think it should be doesn't mean that he's out of line to take advantage of the way things are. It's kind of like, "I don't think the government should be giving this to me, or not taking it from me, but if the government is going to give me this advantage, then I'd be a fool not to take it."

That can apply to anything. Food stamps, public housing, public healthcare...etc. Even if you don't believe in it, the tax dollars (which could include your tax dollars or perhaps future taxes on income) are already paying for it, so you might as well take it.

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No need to ovderdo as I have been looking at numbers all day and can only read so much.

That's appreciated. There's really not much to read. In short, SCOTUS simply decided that taxing income from cash dividends as personal income doesn't violate the 16th Amendment; it's lengthy, but the decision doesn't really do much besides that.

Another thing:

To be clear, I don't dispute that the same revenue is being taxed twice. My entire objection is that it is two different types of income and there are two different income sources; therefore, it is not the same income being taxed twice.

at this point I'm pretty sure only two people are reading the posts. I skimmed through just to see if the topic changed.

Quote: Mission146

Another thing:

To be clear, I don't dispute that the same revenue is being taxed twice. My entire objection is that it is two different types of income and there are two different income sources; therefore, it is not the same income being taxed twice.

If the taxes are paid twice, then one should be able to theoretically invert the situation where you only tax the dividends, and then claim the corporation has already paid its taxes.

Quote: rxwine

Quote: Mission146

Another thing:

To be clear, I don't dispute that the same revenue is being taxed twice. My entire objection is that it is two different types of income and there are two different income sources; therefore, it is not the same income being taxed twice.

If the taxes are paid twice, then one should be able to theoretically invert the situation where you only tax the dividends, and then claim the corporation has already paid its taxes.

It can be done simple in one of two ways:

1. They are simply tax-free to the individual, you do not claim them.
2. They are expensed off at the corporate level pre-tax.

Too many people want to tax the revenue. Propose to fix the situation and you are told it is a "tax break for the rich" or we hear claims about how some fast food worker pays taxes on wages so it is unfair.