# Bush and "Double Taxation" - refute this **URL:** \ **Category:** Great Debates\ **Created:** [March 28, 2003, 8:23am UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742 "2003-03-28T08:23:48Z")\ **Posts on this page:** 10\ **Page:** 4
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [March 30, 2003, 3:50am UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/61 "2003-03-30T03:50:30Z")
> [@](#): > > \*Originally posted by jshore \* > Oh come on, **Scylla**. Zell Miller is not very representative of the Democratic party…certainly not the liberal or even moderate wing. As I noted, he is probably the most conservative Democratic senator at least on tax issues and has been, I believe, the first (and one of only a handful overall) Democratic senators to support both of Bush’s tax cut plans. Actually, if you look at the American Conservative Union ratings ( [http://www.acuratings.com/](http://www.acuratings.com/) ), then that other Democrat, Ralph Hall gets stellar ratings of 96 in 2001 and 88 in 2002. Miller’s record is a little more mixed with a 60 rating in 2001 and a 47 in 2002. Of course, their ratings here include lots of non-tax-related votes. For the two Republicans, by the way: Shelby got a perfect 100 in 2001 and an 89 in 2002 and Dreier got 84’s in both years. This group may be “bi-partisan” in the sense of having 2 Dems and 2 Reps but it is hardly a broad political spectrum! ---
**Author:** ![Scylla](https://avatars.discourse-cdn.com/v4/letter/s/a5b964/32.png) [@Scylla](https://boards.straightdope.com/u/Scylla)\ **Post date:** [March 30, 2003, 4:47am UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/62 "2003-03-30T04:47:54Z")
jshore: > [@](#): > > Wow, Scylla, you’re getting better. This time it only took like 3 posts to get you to explain what it was about my statement that bothered you! You know, when most people think a statement isn’t precisely correct, they explain why they think of it as not precisely correct rather than to lead the other person on a wild goose chase of guessing what you are objecting to. I don’t know why you do this, except perhaps to “score debating points”. I thought you were wrong. It sounded fishy. I wasn’t sure so I asked for a cite rather than flat out contradict you. That’s why I asked you for a cite. What’s wrong with that? > [@](#): > > Well, you may be right that further cuts in capital gains taxes won’t have that much effect. I felt pretty confident, but I wasn’t sure you were wrong. That’s why I asked. > [@](#): > > (2) I say “part of the reason”. If you think it is only a small part of the reason, then that is fine and you should make arguments to that effect. However, it doesn’t make my statement wrong and certainly doesn’t justify leading me on wild goose chase about back up my original statement. I’m sorry you saw it that way. My intent was simply to see if you had support for your statement. I didn’t know for sure. I still don’t. I could be wrong. That’s why I asked you for a cite. > [@](#): > > Well, I still didn’t claim it was that widely endorsed. I don’t know what the vote was on it but my impression is that it got almost 100% support among conservatives, some support among moderates, and maybe a smattering among some who could be considered liberal. That may seem reasonable. It may even be true. I don’t know. However, if you wish to argue that that was so I’d ask you to support it. I’d hope you’d agree we have to do better than just guessing when we make our assertions. If my memory serves there was strong bipartisan support. > [@](#): > > My point is an attempt at a definition of a group of conservatives who tend to call themselves “pro-growth” and support basically supply-side / trickle-down type policies (along with smaller government). If you read the WSJ editorial page, listened to Jack Kemp, etc., it would be fairly obvious who I was talking about. I don’t think it’s a valid definition. As I said, I get the WSJ, and I do occasionally peruse the editorial pages, and it looks to me like you’re positing a stereotype that holds little validity. I find the stereotype to be a little simplistic and churlish. > [@](#): > > Sure, practically everyone is “pro-growth” but they don’t all define the best way to grow the economy to be the sort of supply side polices of the WSJ editorial page, The Club for Growth ( [http://www.clubforgrowth.org/](http://www.clubforgrowth.org/) ), etc. The club for growth link did not lead to the WSJ editorial pages, nor, without reviewing its contents, does it speak for all conservatives. > [@](#): > > Well, we can quibble about definitions til the cows come home. I think the distinction between the supply-sider / Club for Growth / libertarians are pretty slight although they could no doubt explain it to me just like the Spartacus groups and Trotskyist groups and the rest of them could explain the distinctions between their socialist/communist views. Beats me. I’m just a conservative, and they don’t speak for me. It looks to me like you’re trying to assign a boogeyman to aspects of fiscal policy you disagree with. Rather than do that why not simply argue the merits of the fiscal policy in question? Not every tax-cut is an excuse to line the pockets of the rich and screw the poor. > [@](#): > > Oh come on, Scylla. Zell Miller is not very representative of the Democratic party…certainly not the liberal or even moderate wing. I never said he was. But you can’t trot out a group of two Republicancs and two Democrats and say they represent Conservative thought and expect me to take it seriously. > [@](#): > > Well, it seems to me that on economic issues, the distinctions here between conservative and libertarian get pretty subtle. It seems to me that many people on this message board tend to categorize themselves as conservative / libertarian. Those libertarians who dislike the conservative label usually seem to object to the religious right brand of conservativism on social issues, not to vast distinctions over tax and economic policy. The devil **is** in the details though. Though Libertarian and Conservative thought share similaritiesto a degree, you can’t use one as an example of the other any more than you can use a cat as an example of a dog. Libertarians believe in a free market to a degree most Conservatives do not. Most conservatives, myself included recognize and favor controls and regulation. We believe that it is a necessary evil which should be kept to a minimum. > [@](#): > > Well, I’m glad to hear you say it. I have no objection to paying my fair share, and I think that when people **earn** money a portion of it should go to tax to uphold the benefits of society. That is fair and proper. > [@](#): > > Well, there are all sorts of distinctions that can be made about all sorts of different taxes. And, as I have argued in other threads, I am openminded toward a policy of eliminating dividend taxes if it is coupled with a broader reform of corporate taxes to close loopholes and with some sort of other tax policies that get rid of the regressive nature of this tax cut. I haven’t found many supporters of the dividend tax cut who are too keen on these other ideas though. They are seperate ideas. Personally, I think both income and corporate taxes could use an overhaul, but that is seperate to whether dividend taxation is good or not, at least in my mind. Similarly, a tax cut being regressive is not necessarily a bad thing, any more than North is somehow generally better than South. Our tax structure as it is set up now is what I would consider to be staggered progressive, and where it is progressive it is very progressive. I think we are set up properly among very low income areas, poverty and under, but are far too burdensome just above the poverty line into the low income areas. Then we become extremely progressive. The problem as I see it lies in someone attempting to bridge the gap from poverty to lower-middle class in terms of income. It is too difficult to do. Mobility in other areas is pretty good. Fixing that problem doesn’t lie in Dividend and Capital gains taxation. In fact I don’t know how to fix it. But anyway, it seems to be a seperate issue and not primarily a tax one, though taxes play a part. > [@](#): > > This group may be “bi-partisan” in the sense of having 2 Dems and 2 Reps but it is hardly a broad political spectrum! It’s your four people. I’m not trying to say they represent anybody. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [March 30, 2003, 5:25am UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/63 "2003-03-30T05:25:19Z")
**Scylla** : Well, [here](http://www.buyandhold.com/bh/en/education/carlson/2001/fallingtaxrates.html) is a cite that talks about the important of the differential in taxation between dividend and capital gains. He was even forecasting folks to turn back toward dividend-paying stocks somewhat just because of the lowering of rates in the 2001 Bush tax plan would lower the differential in taxation between the two: > [@](#): > > One advantage capital gains have versus dividend income is that capital gains are taxed at preferential rates. Indeed, the maximum tax rate on long-term capital gains is 20%. On the other hand, dividend income is taxed as ordinary income. That means that investors in the top tax bracket now pay nearly 40% in taxes on dividend income. > > So why do falling interest rates increase the appeal of dividend income? Simple. Reduced income tax rates narrow the gap between the preferential tax treatment of capital gains and the tax rate on dividend income. > > Thus, if tax rates are reduced over the next few months, look for investors’ appetite for dividend income to increase. And [here](http://csmweb2.emcweb.com/durable/1997/08/25/econ/econ.1.html) is a link from the time when the capital gains tax was cut talking about the effects. Note the statement that > [@](#): > > Financial advisers say the new tax law favors: > > - Stocks of “growth” companies that pay no or low dividends (which are taxed as ordinary income). Your earnings will be low-taxed capital gains. > > … Here is a larger quote from that article discussing the effect: > [@](#): > > “I don’t think there will be major changes,” says Joan Blum, senior vice president at Fidelity in Boston. > > “There will be some tendency for people to take a little bit longer horizon … and people may be more sensitive to the different tax treatment for dividends and capital appreciation,” she says. > > “We will see strategies and financial products evolve to generate capital gains and work away from income,” predicts David Cohen a personal finance specialist at KPMG Peat Marwick in Chicago. > > Indeed, investment advisers today urge clients to buy, and hold, growth stocks with no or low dividends. When sold, they are taxed at the low capital-gains rate. In turn, they recommend paring back bonds and stocks with high dividends, since their yields are taxed as ordinary income. So, the general conclusion seems to be that there was expected to be some effect…albeit probably not a huge effect…from the lowering of the capital gains rate, not at all out of line with my statement that “part of the reason for the relative incentives for dividends vs. growth stocks are the way they are is because the capital gains rate was lowered.” ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [March 30, 2003, 8:22pm UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/64 "2003-03-30T20:22:33Z")
**DCU** replied to me: \*“That kind of sounds like having it both ways: we want the company to be a nominal, transparent, pass-through tax-free ‘conduit’ when it’s earning income, but an independent separate legal person in its own right when it’s getting hit with a lawsuit. Seems to me that we ought to stick with one interpretation or the other.” Again, this is a convenience thing – it is much easier to sue the partnership than to sue each individual partner. Treating the partnership as a separate entity makes it easier for plaintiffs to sue because they don’t have to figure out who to name as a defendant.\* I understand that part, and since in such a case the partnership is merely a sort of legal alias for the actual owners, it makes sense to me that it shouldn’t be separately taxed on its income. That also makes sense for the “limited liability” entities you mention that exclude each owner only from liabilities incurred by another owner’s wrongdoing. But if I understand correctly, that is not the case for the sort of businesses usually referred to as “corporations”. Their owners and directors aren’t “on the hook” for the corporation’s liabilities in general. That sounds to me as though the corporate identity has a purpose beyond mere “convenience” or making it easier for plaintiffs to sue it (gee, is that really why they came up with the idea? ;)). That’s a deliberate establishment of a business as a separate legal person with its own income, its own assets, its own debts, and its own legal liabilities for which none of its owners can be held legally responsible. I don’t see anything wrong with requiring such legal persons also to pay their own income tax. I’m willing to listen to arguments that it would be better “economic engineering” not to require it (and no, **pantom** , I’m not really insisting that you prove to me that you were able to correctly identify a speculative bubble before I’ll let you make such an argument! :)), but I don’t buy the claim that it’s morally unfair and “double taxation”. ---
**Author:** ![Dewey\_Cheatem\_Undhow](https://avatars.discourse-cdn.com/v4/letter/d/13edae/32.png) [@Dewey\_Cheatem\_Undhow](https://boards.straightdope.com/u/Dewey_Cheatem_Undhow)\ **Post date:** [March 31, 2003, 2:13am UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/65 "2003-03-31T02:13:23Z")
> [@](#): > > \*Originally posted by Kimstu \* > \*\*But if I understand correctly, that is not the case for the sort of businesses usually referred to as “corporations”. Their owners and directors aren’t “on the hook” for the corporation’s liabilities in general. \*\* The “owners” of a corporation are the shareholders, just as the “owners” of the various types of partnerships are the partners and the “owners” of an LLC are the members. They each have limited liability from the entity’s liabilities in the manner and to the extent I described in an earlier post. The members of an LLC and the limited partners in an LP are liable to the exact same extent as a shareholder in a corporation – i.e., only to the extent of their investment in the enterprise. LLP’s operate under slightly different rules as noted above, and general partnerships offer the least insulation from liability. As for directors – directors are functionally employees of the enterprise and thus aren’t liable for its debts. This is true even in a general partnership. A director (or officer or other management type) is no more liable for the debts of an enterprise than, say, a secretary or receptionist. N.B.: This does not preclude personal liability for an individual’s own acts. If anyone – shareholder, partner, director, receptionist, whoever – commits an tort or agrees to be bound personally by a contract, they may be pursued personally for that obligation. The entity may also be liable, of course, either under _respondeat superior_ for torts or as a party to a contract. In any event, limited liability, even in the corporate context, only insulates a person from acts he himself did not personally undertake.\*\* > [@](#): > > That’s a deliberate establishment of a business as a separate legal person with its own income, its own assets, its own debts, and its own legal liabilities for which none of its owners can be held legally responsible. > > N.B.#2: Many officers and directors (or other management type) separately contract with the entity to be _indemnified_ by the entity for any such personal liability. Some entities include indemnification in the documents that create them (partnership agreement, LLC agreement, corporate articles or bylaws, etc). But that’s possible in any entity type. It is not unique to the corporate form.\*\* Again, this is no different from an LLC and only slightly different from an LP or LLP w/r/t liability. And in the sense that the enterprise has its own income, debts, and liabilities, it isn’t different from any of the forms of business described above – even in a general partnership, those things “belong” to the entity in those states that treat the partnership as a separate being, with the partners acting functionally as guarantors on those obligations. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [March 31, 2003, 2:49am UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/66 "2003-03-31T02:49:35Z")
**DCU:** _The members of an LLC and the limited partners in an LP are liable to the exact same extent as a shareholder in a corporation – i.e., only to the extent of their investment in the enterprise. […] As for directors – directors are functionally employees of the enterprise and thus aren’t liable for its debts._ Thanks again **Dewey**! But that seems to mean that, as I originally thought, all these entities except the GP have no “natural person” who is legally responsible for their liabilities as an entity (except up to the extent of that person’s own investment or personal wrongdoing). The owners are not responsible, as you say, for acts they themselves did not personally undertake. Meanwhile the directors, as you say, are considered mere employees. So the directors aren’t held responsible because it’s the shareholders who own the enterprise, and the shareholders aren’t held responsible because they’re not managing the enterprise. So the corporate identity of the business as a “legal person” is indeed serving to protect its owners and managers from individual liability. Fine, but then it seems to me that that “legal person” is something more than a nominal “conduit” for funds, so it should pay its own damn income tax. ---
**Author:** ![Dewey\_Cheatem\_Undhow](https://avatars.discourse-cdn.com/v4/letter/d/13edae/32.png) [@Dewey\_Cheatem\_Undhow](https://boards.straightdope.com/u/Dewey_Cheatem_Undhow)\ **Post date:** [March 31, 2003, 4:43am UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/67 "2003-03-31T04:43:08Z")
**Kimstu** : Then logically you must require LLCs, LLPs, and LP’s (to the extent of limited partners) to also pay income tax because they each shield their owners from liability beyond their original investment. If the tradeoff for limited liability is double taxation, then it makes no sense to treat these other organizational forms differently from corporations. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [March 31, 2003, 5:29am UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/68 "2003-03-31T05:29:54Z")
**DCU:** _Then logically you must require LLCs, LLPs, and LP’s (to the extent of limited partners) to also pay income tax because they each shield their owners from liability beyond their original investment._ Yes, which is exactly what I suggested in my first post to this thread (although there I confined the suggestion to LLC’s because I didn’t understand that liability shielding worked the same way for LLP’s and LP’s). ---
**Author:** ![Avumede](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/avumede/32/7235_2.png) [@Avumede](https://boards.straightdope.com/u/Avumede)\ **Post date:** [March 31, 2003, 6:37am UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/69 "2003-03-31T06:37:25Z")
BTW, here’s the comic referred to in the OP: [http://www.ucomics.com/tomthedancingbug/2003/03/08/](http://www.ucomics.com/tomthedancingbug/2003/03/08/) ---
**Author:** ![Dewey\_Cheatem\_Undhow](https://avatars.discourse-cdn.com/v4/letter/d/13edae/32.png) [@Dewey\_Cheatem\_Undhow](https://boards.straightdope.com/u/Dewey_Cheatem_Undhow)\ **Post date:** [March 31, 2003, 1:24pm UTC](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742/70 "2003-03-31T13:24:08Z")
**Kimstu** : OK, that was unclear – you kept referencing “corporations” in your later posts. Suffice it to say that yours is a minority position unlikely to pass. [Previous page](https://boards.straightdope.com/t/bush-and-double-taxation-refute-this/164742.md?page=3)