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Originally posted by sgtclub
1 (honest) question and then a few comments:
When the money is eventually pulled from the tax deferred account, at what rate are the dividends taxed?
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When the money is distributed out of deferred accounts, it is taxed as regular income at the taxpayer's applicable marginal rate, not at the deferred dividend rate. So the tax cut truly does only benefit the minority of investors who hold a material amount of corporate stock directly.
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Put aside supply side economics (which you must do in order to have the view that you have). I think you are not looking at the big picture. From a corporate finance prospective, a reduction in the dividend tax makes dividend payments more likely (see, e.g., Microsoft), which often makes equity financing more attractive/less expensive then debt, which allows the savings to be spent in other ways (R&D, new hirings, etc.).
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Equity financing is seldom less expensive than debt for two reasons. The fees taken by underwriters are larger on equity issues than on debt issues, and significantly larger than on standard bank borrowing or the CP market. In addition, corporations, all things being equal, would rather incur debt because interest is deductible, while dividends are not.
The dividend tax cut was put in place because (i) wealthy campaign contributors wanted it and (ii) it was an artificial boost to a moribund stock market. Investors, not corporations, like dividends. They are willing to pay more for stock paying dividends. That is why Microsoft paid dividends.
Yet again, the Republican party is robbing the future to pay short term benefits to the current party faithful.
