Subj: Re: “Fair Shake or Shakedown” WSJ ED 7/8/04
Date: 7/19/2004 8:30:54 AM Easter Daylight Time
Sent from the Internet (Details)
Thanks for your kind words, and for your wonderful manifesto!
I share your enthusiasm for tax-free dividends for low-and-middle income citizens, but note that this Administration has got it backwards. Great breaks on tax-favored dividend income for the super rich (Bill Gates, Sandy Weill, et al), but virtually nothing for the rest of America. It’s not just that the rich get the lion’s share of dividends, but that the other investors get most of their dividends through mutual funds, which exact an 80% tax in the form of expenses before letting the remaining 20% “trickle down” to shareholders.
Think about it. The average equity fund portfolio yields about the market yield of 1.8%, deducts an average expense ratio of more than 1.5%, and thus provides a dividend yield of 0.3% to its owners. The dividend tax break, then , would amount to yield enhancement of less than 0.1%!
So for dividends to get back to their historic importance (the long term average yield level is 5%), we need lots of dividend increases (long overdue!) or, ulp, much lower stock prices. But we also need mutual funds (such as index funds) that don’t rip-off the man in the street by confiscating the dividend income that ought to go to the owners.
Food for thought!