The President's plan is certainly good for Wall Street. Eliminating taxes on dividends is like giving steriods to the stock market. It pumps it up.
The plan would be good for all of us if Wall Street was the same as Main Street. But apart from they're both being streets, there's not much overlap. Ofcourse, when the paper value of American corporations increases by some $7 trillion in the late 90s and then drops by $7 trillion over the last three years, there's bound to be some consequence for the real economy. One moment middle-class people who invested in the market feel rich, the next moment they don't. And these feelings affect how much they spend.
But the giant casino that's the American stock market is not the American economy. Most consumers care far more about whether they're going to keep theirjobs, or get a raise, than the value of their stock portfolio -- if they own any stocks. And most middle-class people who own shares of stock have them in 401-K plans and IRAs, which means that dividends are already sheltered from taxes. Meanwhile, most companies rely on retained earnings when they want to invest. They don't depend on the price of their stocks, or on whether dividendsare taxed.
The economic reality is that Main Street, and the factories that make the stuffthat's sold on Main Street, won't hire anyone until business picks up. Retailers are pulling out their hair because Christmas sales were so rotten. Sodon't expect retailers to hire more people. Manufacturers are running at only 75 percent capacity. There's not enough demand for what they can produce. So they're not going to hire anybody, either. And so it goes all up and down Main Street America.
Getting Main Street to hire again depends on getting consumers to spend more money in the real economy. They won't spend more money until they have more, and feel more confident about their jobs.
Here's where the Bush plan to eliminate taxes on dividends collides with economic reality. The rich who'll be the prime beneficiaries of this plan already spend as much money in the real economy as they want to spend. I mean, that's the definition of being rich. You don't worry about money. So this particular tax cut isn't going to spur demand on Main Street.
The only way to spur demand is to get more money into the hands of more people.
Pumping Wall Street full of steriods just won't do that.
