ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

US Dividend Tax Policy Drives Economic Growth and Growth Investing Strategies

Updated on October 9, 2012
America to be the World Leader in Dividend Taxes
America to be the World Leader in Dividend Taxes | Source

America Leads the Failed Attack on Private Capital Formation

As America addresses its Fiscal Cliff, savers and private capital formation will be punished. Dividend Tax will rise to fifty per cent in 2013; and Capital Gains Tax will rise from fifteen to twenty five per cent. America will thus have the highest taxes on private capital in the developed world.

The immediate conclusion to be drawn is that wealth is being confiscated; along with all hopes of the private sector ever becoming the driver of growth that it once was. In the absence of private capital formation, all growth will be created by the Federal Government. Unfortunately however, since the Federal Government is also cutting its debts and expenditures, there is no growth to be expected from here either.

It therefore looks as though the American economy is headed for a period of continued economic stagnation. This pessimistic conclusion overlooks the resourcefulness and creativity of the American private sector.

A high tax on dividends therefore means that earnings will be retained and put to some more fiscally advantageous use for investors. Retained earnings could be used for share buybacks. Alternatively, they could be used to acquire other companies. They could also be used for internal growth; through the application of productivity gains on capital investment. Better still, they could be used to pay down debt and make the balance sheet impregnable.

All these strategies, for the use of retained earnings, have the impact of reducing the size of shares and debt outstanding relative to company earnings. American corporate balance sheets are going to become the strongest in the world; which will command a re-rating by the global capital markets. American Price/Earnings multiples will therefore expand as the markets revalue these company strategies with premium ratings. Growth strategies and spurious growth strategies through mergers and productivity growth will therefore command share price premium valuations.

Since Capital Gains Tax is lower than Dividend Tax, companies and investors will be driven into strategies that reflect this fiscal arbitrage. Policy makers will then take credit for creating a pro-growth fiscal background; and the booming equity market that follows. Employment will then be created in the sectors, such as financial services, that benefit from these fiscal behavioural incentives. For example, unemployed real estate brokers will become stock brokers.

The commitment of the Federal Reserve to keep interest rates low until 2015 and Quantitative Easing in place until some definable growth target is reached, can only add to this pro-growth investing climate. The liquidity provided by the Fed is the fuel and the tax policy is the catalyst to drive a rally in equity prices; that will continue to confound most investors. Most investors perceive weak growth and the confiscation of capital through taxes as a headwind for equities. Those who understand company behaviour, will see the current depressed equity valuations as the source of future capital gains.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)