G-DAE Working Paper No. 03-01: “Read My Lips: More New Tax Cuts”
III. The Distribution of Dividend Income
The most relevant issue in studying the distributional impacts of repealing dividend
taxation is the distribution by income. To explore how dividends are spread across the
income spectrum, we use summary data from the 2000 individual income tax returns filed
with the Internal Revenue Service.10 The IRS data indicate the total number of returns
with dividend income (about 34 million) and the total amount of dividend income
claimed by taxpayers (about $147 billion). These data are given for each of 19 adjusted
gross income (AGI) categories. AGI includes income from wages, interest, dividends,
capital gains, business profits, rents, alimony, and several other sources, less allowable
deductions from IRA contributions, moving expenses, self-employed health insurance,
and other deductions.
The detailed AGI categories given by the IRS allow a comprehensive analysis of the
distribution of dividend income, particularly among those with very high incomes. Table
2 presents the distribution of dividend income by AGI. About 85% of all tax filers have
an AGI of under $75,000, but fewer than one-fifth of these filers have any dividend
income at all. Tax filers with an AGI of $75,000 or less received an average dividend
income in 2000 of about $380. Contrast this with the claim that seniors will receive an
average tax savings of $936. In reality, the majority of Americans will receive no benefit
from the proposal to repeal dividend taxes simply because they have no dividend income.
Unlike the typical American, we can see in Table 2 that those in the upper income
brackets receive a significant amount of dividend income. Tax filers with an AGI of
$100,000 or more, about 8% of all filers, received 63% of all dividend income in 2000,
with average dividends of about $8,500. For those tax filers with an AGI of $500,000 or
more, nearly all received at least some dividend income. Those with an AGI of more
than $10 million received average dividends of nearly $1 million in 2000. Clearly, these
are the taxpayers who stand to benefit substantially from a repeal of dividend taxation.
Box 1: The Racial Distribution of Dividend Income
The distribution of dividend income is skewed on the basis of race. According
to the U.S. Census Bureau, whites received 93% of all dividend income in 1999
while only 75% of the U.S. population is white. About 23% of all whites with
any income had some dividend income in 1999. Non-whites are much less
likely to have dividend income. Only 8% of blacks and 6% of Hispanics with
income in 1999 had dividend income. Whites with dividend income also tend to
receive more dividend income than non-whites with dividend income. While
whites with dividend income received an average of $3,161 in dividends in
1999, blacks received $2,377 and Hispanics received $2,695.
10 “Individual Income Tax Returns, 2000” by David Campbell and Michael Parisi, IRS Statistics of Income
Bulletin, Fall 2002.