Retirement Insights
By Karen Gilgoff
A recent informal survey asked several of AFSCME's retiree leaders, Do you own individual corporate stocks that pay out dividends to shareholders? Eunice Parrish of Houston; Lillian Sewell of Plantsville, Conn.; Jerry LaPointe of Eau Claire, Wis.; Norman Davis of New York City; and Helen Shea of Concord, Calif., all gave the same answer: NO.
The responses were enlightening because President Bush, in pushing his proposal to eliminate the federal income tax on corporate stock dividends, claims that the move would help all stockholders — "especially seniors." The dividend tax cut is more than half the total cost of the President's plan to stimulate the economy: a whopping $674 billion over 10 years.
Since the President first announced the plan in January, its size and value have been questioned by Republicans and Democrats alike. As deficits and unemployment grow, along with pressures on federal and state budgets, people are asking who would benefit from the program and whether it gives the economy the biggest bang for our bucks. Seniors, for example, want to know what the tax cut would actually mean to them.
They certainly could use help, since lots of low- and moderate-income seniors are suffering in the current economy. Low interest rates are great for prospective homeowners, but not for retired workers who count on bank certificates or Treasury bills to supplement pensions and Social Security.
WEALTH & DIVIDENDS. Stockowners have also seen their incomes decline. Among moderate-income people, how-ever, much of this stock is held in IRAs, 401(k)s and 457 plans, which already have tax protections and would not gain from elimination of the tax on dividends. People with higher incomes typically own individual stocks — particularly the type paying dividends.
It's true, as the White House claims, that the share of the tax cut going to people over 65 would be about 40 percent of the total. But that's because wealthy people tend to get even wealthier with age. Older people with incomes under $50,000 would get only 13 percent of the elderly's share and less than 6 percent of the total cut going to all age groups. Similarly, those with annual incomes of a million dollars would get cuts of nearly $30,000, while people with $30,000 and $40,000 incomes would see average benefits of only $42.
So why does Bush say that 13 million seniors will get an average tax cut of $1,384? Bob Greenstein of the Center on Budget and Policy Priorities tells people to "think about the average tax cuts that would go to Bill Gates and his chauffeur." By averaging the total, he explains, it looks like each would get a huge sum, even though billionaire Gates would actually receive nearly all the tax cuts and his chauffeur would get little, if any.
No matter how much the White House talks about averages, it's hard to make a case that the tax cut will help average seniors. In fact, many believe it could hurt more than it helps.
USING MONEY WISELY. "The federal budget would lose billions, right on top of the trillions lost with the President's earlier tax cut — another gift to the wealthy," says Hal Gullett, a leader in AFSCME's Illinois Retiree Chapter 31 and president of the Illinois Alliance for Retired Americans. "That's money that could shore up Social Security's finances, add a prescription drug benefit to Medi-care or help pay for long-term care."
Even worse, the drain on the budget will lead to deficits as far as the eye can see.
Robert S. McIntyre, director of Citizens for Tax Justice, thinks the plan is bad economics as well as unfair. "President Bush seems to have decided that the biggest problem facing America today is that the rich don't have enough money. If you agree," he says, "then the President's latest tax plan is perfectly designed."
