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”

2. Repeal of dividend taxation would be a highly-skewed benefit in favor of high-
income households. Based on an analysis of IRS tax returns, about 75% of the
tax savings would accrue to those with an adjusted gross income of $100,000 or
more - less than 10% of all tax filers. Most tax filers receive no dividend income
and would, consequently, receive no direct benefits from the elimination of
dividend taxes.

3. The proposal to repeal dividend taxation will, ceteris paribus, exacerbate income
inequality in the U.S. Given that current levels of income inequality in the U.S.
are at historic high levels, and higher than in any other developed country, one
must question the pursuit of policies that further increase inequality.

II. Dividend Income and Seniors

First, we explore the validity of the President’s claim that more than half of dividends go
to seniors. The U.S. Census Bureau publishes data annually on the distribution and
composition of money income in the United States. For this analysis, the most recent
complete data on dividend income is used, based on 1999 data.8 The Census Bureau data
indicate that in 1999 about 40 million people received dividend income. Among these
individuals, the average dividend income was $3,112. The Census Bureau divides its
income data into four age categories. Table 1 presents the 1999 distribution of dividend
income by these four categories. In sharp contrast to the President’s claim, only about
26% of all dividend income is received by those age 65 or over. In fact, people aged 25-
44 received more dividend income in 1999 than people age 65 or over. The age group
with the largest proportion of dividend income includes those aged 45 to 64 years. No
evidence could be located in support of the assertion that seniors receive more than half
of all dividend income.

Table 1. Distribution of Dividend Income by Age Category, 1999

Age
Category

Number of People
with Dividend
Income (thousands)

Mean
Dividend
Income

Total Dividend
Income ($
billions)

Share of Dividend
Income (percent)

15-24 Years

_______________1,841

$1,501"

_________$2.763

___________2.2%

25-44 Years ~

_____________15,669

$2,331

________$36.524

__________28.9%

45-64 Years

_____________16,039

$3,397

________$54.484

__________43.2%

65 or Over

______________7,014

$4,627

________$32.454

__________25.7%

TOTAL ~~

____________40,564

$3,112

$126.2259

__________100.0%

8 Money Income in the United States, 1999, U.S. Census Bureau report P60-209, September 2000.

9 Note that the total dividend income obtained from summing the dividend income for each age category
differs slightly from the total obtained by multiplying 40,564,000 people by the $3,112 average dividend
income. The difference is likely due to rounding errors or minor discrepancies in the data.



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