Exempting Corporate Dividends from Individual Income Taxes

As the centerpiece of its “growth package,” the Bush Administration proposes to eliminate taxes that individuals pay on dividend payments they receive from corporations. These dividends would receive tax-free treatment to the extent that they have been paid from profits subject to the corporate income tax. For individuals who hold shares in companies that do not pay dividends, the proposal would reduce taxes on capital gains when the shares of stock are sold. According to Administration estimates, this tax cut would reduce revenues by $364 billion, representing more than half of the package’s $674 billion cost through 2013.