Bush's Dividend Plan Won't Yield Great Results

Elderly people with incomes below $50,000 -- a group that represents two-thirds of all the elderly in the nation -- would receive only 13% of the tax cut going to the elderly and less than 6% of the total tax cut.

With so much of the tax break going to so few individuals -- and given that, in most cases, investing through a tax-advantaged retirement account would still provide a better scenario from a tax perspective -- it's hard to see where this tax break will prompt a flood of new money into the stock market.

Corporations Cry Foul

We've already talked about the unlikelihood of corporations rushing to distribute dividends. (See Are Dividends Really as Taxing as Firms Claim?)

"Most companies retain their earnings for strategic reasons and business considerations," says Michael Levin, a corporate tax analyst for RIA, publisher of tax and accounting information. "Changing the law won't mean they'll all start paying dividends."

Unless, of course, the law benefited them more, which this proposal doesn't.

"It would have been optimal to give the tax deduction to corporations," says James Abate, investment director for Global Asset Management, a division of UBS. "But that wouldn't have been politically salable."

Perhaps not -- as the Democrats staunchly oppose the wholesale elimination of the tax on dividends on the individual level, they're not likely to embrace what seems to be more corporate welfare.

Even so, many economists, institutional investors and tax-policy analysts agree that more economic stimulus could come from giving the break to corporations. "Companies could then use the tax savings to plow into the business and/or pay higher dividends to investors," says Bill Massey, also of RIA. "Both would benefit everybody."

In the end, though, the Bush plan has a long way to wind through Congress, and it's far too soon to start counting your dividends before they're paid.

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