Derek Zoolander, played by Ben Stiller in the movie Zoolander, could only turn left — never right — when modeling clothes on a runway. Like Zoolander, there are political observers today who can only turn to the left, and never toward an objective opinion that might reflect the position of the center or, God forbid, a conservative position from the right. And when such opinion is based on erroneous analysis, the problem is compounded — truth takes a back seat to data manipulation.
Recently, I read an editorial by Molly Ivins, a nationally syndicated columnist who appears to have a rather large following and is pressed to come up with reasons to criticize conservative positions. One of her favorite topics of discussion is the “rich.” Time and again Ivins goes out of her way to undermine the logic of President Bush’s plan to stimulate the economy through tax cuts — specifically the president’s support for cutting taxes on dividends.
In a recent editorial, Ivins had the following to say about the dividend tax cut: “Still on the general theme of the country going to hell in a hand basket, what happy effect do you suppose President Bush’s tax cut on dividends already is having? If you guessed the rich are getting richer, right you are, to an eye-popping extent.”
In the piece she quoted Time magazine — not a bastion of conservative support — as follows: “Since May, more than 200 firms have raised their payouts to shareholders and — in a time of scrutiny over pay packages — the increases are minting riches for bosses who own a lot of company stock.” She then goes on to state some specific supposed beneficiaries of the dividend tax cuts: “Sandy Weill of Citigroup will get $27 million a year in after-tax income, up from $11 million. Bill Gates will get an after-tax windfall of $82 million a year, just what he needs. Of course, that’s $82 million less for a treasury that’s now running a $465 million deficit.”
Chalk these conclusions up to the “Ivins Factor,” the columnist’s propensity to leave out important details when they don’t support her editorial position. In this case, Ivins’s analysis is basically wrong.
Let’s look first at Bill Gates, the founder of Microsoft Corp. Before the change in the tax code, he could sell stock whenever he wanted — and was never forced to — and would incur taxes when he sold that stock. When Microsoft initiates a dividend, Gates must pay taxes on those dividends in the year that dividend is paid and every year thereafter.
Not too long ago, Ralph Nader, the supreme leftie, demanded that Microsoft pay dividends so that the government could collect its fair share of taxes. Now Ivins, another leftie, complains that the same dividend payments inure to the rich. These lefties need to get on the same page. Do they want increased dividends or not?
Of course, from a wealth-distribution perspective, Nader is right. As corporations increase their cash-dividend payments, they are forcing the payment of taxes on those dividends. So Ivins’s analysis of after-tax income for Sandy Weill and Bill Gates fails to correctly calculate that both federal and state governments will collect the windfall, not these two business leaders (who, by the way, have changed American business for the better and have earned their right to wealth accumulation).
In other words, if the president did not propose the change in the tax law relative to dividends, these two gentlemen among other stockholders would not be forced to pay dividends in the year they were declared. They could retain their wealth and cash-in that wealth whenever they desired — to generate income and, as an undesirable consequence, pay taxes.
The president’s tax change really benefits the government, not corporate kingpins. To state that the Treasury will get “$82 million less” makes the erroneous assumption that Microsoft would pay a similar dividend that would be taxed at higher tax rates under the old tax law. The reason that many companies increased their dividends was because of the dividend tax cut!
Do you think Ivins would ever compliment Gates on his creation of a $100 million foundation that will save millions of lives? I doubt it. Since he’s “rich,” he must be a bad guy.
When one performs a critical analysis of the president’s dividend tax cut, it is easy to see that Ralph Nader was right: forcing increased dividend payments creates a windfall of tax revenues to the government, not a windfall for the rich. When editorial commentaries twist such truths they become propaganda for a political agenda, and not objective information to support a logical opinion.
Molly Ivins’s biased and erroneous analysis is a classic example of such propaganda.
— Tom Nugent is Executive Vice President & Chief Investment Officer of PlanMember Advisors, Inc. and an investment consultant for Wealth Management Services of South Carolina.