The Administration's Proposal to Cut Dividend and Capital Gains Taxes

Research Report

The Administration's Proposal to Cut Dividend and Capital Gains Taxes

January 20, 2003

Abstract

In the United States, some corporate income is never taxed, some is taxed once (either at the individual or the corporate level), and some is taxed twice. Many economists-ourselves included-would prefer a system that taxed all corporate income, but taxed it once and only once, at non-preferential tax rates. In this paper, we focus on two crucial dimensions of corporate incentives affected by the tax system: the incentive to shelter corporate income from taxation and the incentive to retain corporate earnings rather than pay dividends.

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