Don't Expect a Flurry of New Dividends

That may not sound like a bad idea at first, but it doesn't allow for much turnaround on the part of the company. There are many instances in which a company really can make better use of its money than investors would.

One potentially positive -- and unintended -- side effect of this proposal, though, is that there's some chance that companies will shelter less of their profit from tax, according to Michael Levin, a corporate tax analyst with RIA Group, a provider of tax law and research information.

"Legitimate companies shield billions of dollars from taxation," Levin says. Because the object of the plan is to eliminate the double taxation of dividends, any untaxed profit that gets distributed as dividends will still be taxable to the investor. "If the shareholders of companies that make great use of tax shelters are still getting taxed on their dividends, there might be some pressure for those companies to dismantle those shelters."

Clearly, this aspect of the plan -- which President Bush didn't even mention when presenting it -- would still be something of a boon to investors. But because the tax break won't come until the stock is sold, investors will have to wait for any benefit. And the likelihood of that down-the-road benefit boosting the economy now is limited.

Yet it's this future break that works against what the Bush plan was touting it would do now -- encourage companies to pay out more in dividends. As an economic stimulus, this proposal needs some tweaking, and you can expect Congress to do just that. We can only hope that tweaking actually improves the plan.

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