In this time of economic turmoil, we need to think hard about how we can use federal tax policy to revive our lifeless economy. We need bold ideas and bold leadership.
I have a modest proposal: Let's exempt from all stock dividends from taxation. We would no longer treat dividends as ordinary income or any other type of income -- the government wouldn't take one thin dime of this investment income.
But let's not stop there: let's also exempt all capital gains realized from the sale of stocks.
This policy would have three salutary effects. First, it would induce a flood of money into the stock market. We all know the stock market badly needs an infusion of cash right now. And what's good for the stock market is good for the country.
Second, by encouraging taxpayers to invest in the market, we would simply be incentivizing them to do what's in their own best interest anyway. We all know that investing in the stock market is a nearly sure-fire way of building wealth over the long-term, the current market blip notwithstanding.
Third -- and this is a more nebulous benefit, I admit -- taxpayers who own shares of stock make better citizens. They care more about our government's economic policies and the quality of elected officials. And they have an incentive to get more involved in civic affairs. My proposal, simply stated, would make us all better citizens, or at least those who could afford some stock.
I really can't imagine a tax policy that would do more to strengthen our economy and civic spirit.
Sure, it might not be completely equitable. The subsidy would benefit most those who have the most. There's no way around the fact that someone earning $1 million a year in ordinary dividends would benefit more than someone earning just $100 a year. Those who couldn't afford any stock at all, of course, would lose out completely, but remember, this is for the good of the country.
I also recognize that exempting dividends and capital gains would cause investors to bid up the price of stocks; the main beneficiaries would be those who already own gobs of stock on the date the subsidy took effect -- you know, the filthy rich.
But it's worth it to encourage badly needed investment in the stock market and make us better citizens. And, remember, we'd be helping ordinary taxpayers by incentivizing them to do what's in their own long-term interest.
I believe this is a perfectly sensibe and defensible proposal. After all, we already do it with homes.
P.S. I thought my sarcasm was obvious, but judging from the comments, it apparently was not.
Most people would say that these "justifications" are silly reasons to exempt dividend income and capital gains from taxation. But these are the same justifications usually offered for exempting the imputed income from owning a home and the capital gains realized from their sale.