03-01 "Read My Lips: More New Tax Cuts - The Distributional Impacts of Repealing Dividend Taxation"

G-DAE Working Paper No. 03-01: “Read My Lips: More New Tax Cuts”

27% of their dividend income. A typical high-income taxpayer, on the other hand,
receives a significant amount of dividend income and is taxed on this income at a
marginal rate of up to 38.6%.

One can use the data from Table 2 to estimate the average tax savings for those in each
AGI category. Tax savings for each AGI category are estimated using the 2002 tax tables
from the IRS. As tax brackets differ by filing status, the analysis is not straightforward.
Also, the appropriate marginal tax rate must be determined based on taxable income
rather than AGI. See Appendix 2 for the detailed assumptions made to derive the tax
savings estimates. The results, by AGI category, are presented in Table 3.¹⁷

Recall that 85% of all taxpayers had an AGI of less than $75,000 in 2000. The benefits
of the Bush proposal to repeal dividend taxation for these taxpayers average less than
$100. Of course, for a taxpayer who receives no dividend income (the majority of
taxpayers), he or she receives no direct benefit from repealing dividend taxes. For a
typical taxpayer with an AGI of around $20,000 or $30,000, the average benefits of
repealing dividend taxes amount to only about $40.

Table 3. Benefits of Repealing Dividend Taxation

¹⁷ The benefit estimates in Table 3 are based on the quantity and distribution of dividend income in 2000.
Of course, the quantity and distribution of dividend income could differ in the future. Thus, the estimates
should not be interpreted as projections of tax savings should dividend taxes be eliminated.

10

<<   <   7   8   9   10   11   12   13   >   >>