Microsoft thanks Bush with historic share dividend

The Register ^ | 1/17/03 | Andrew Orlowski

[ImphClinton]

By November, the fix was in. Attorney General John Ashcroft had indicated that he had little interest in pursuing the case, and several Department of Justice Antitrust attorneys had already left, disillusioned. The result was a settlement neatly summarized by the financial analysts we cited at the time: "a major win; no substantive change in business model or R&D practices; maintain Buy."

Ashcroft had declined to excuse himself from the case: despite having taken $20,000 in campaign contributions for his Senate campaign from Microsoft and refused to disclose contacts with the company. That said, the contribution hadn't done him much good: he still lost the race to a dead man.

So yesterday, remembering its manners, Microsoft got its chance to thank the Administration properly, and it timed the announcement to perfection.

For the first time in its history as a public corporation, Microsoft will pay a dividend to its shareholders. Technology companies loathe paying dividends, although a few pay a token sum. Historically, they prefer to buy back public stock to increase the company's share price: IBM, Intel, Sun and Cisco have spent billions on share purchase programs that effectively shrink the company. Scott McNealy told us it would be a cold day in hell before Sun ever paid a dividend, although in strict terms, both dividends and buy backs are equally money down the drain to a corporation.

Why is this so well timed? On January 6, President Bush announced his new budget, and its centerpiece is the elimination of tax on stock dividends, at the eye-watering cost of $370 billion over ten years.

It should be a hard sell. The administration has already been preparing the public for a move away from progressive taxation, complaining that the poor don't pay enough. Despite targeted cuts to lower income groups, the dividend exemption favors the wealthiest, as most stock holders are institutional investors or extremely loaded individuals, and has been criticized by Bush's former Treasury Secretary Paul O'Neill and from his own side of the Senate.

Lobbyists for technology companies privately oppose the plan, with one telling the Washington Post: "This is not the bill that's going to pass Congress, and everybody knows it." A dead duck, then.

But rumors that a major technology company - Cisco was mentioned, as was The Beast - would break with tradition have been circulating for a little while now.

Microsoft's decision to pay a dividend allows the administration to claim that America's most notorious corporate lawbreaker is in fact, a redistributive angel in wolf's clothing. Thanks to this incredible partnership, we'll soon hear, business and government can get the economy moving. Billions will trickle back to MSFT-holding families, demonstrating that economic stimulus comes not from any Keynesian multiplier, but through the charity of the rich, so justifying the reward, not punishment of the largest corporations. It's a supply-sider's dream!

As an added benefit, this will again sanitize "popular capitalism" - which currently has a rather poor reputation now after the largest loss of wealth in human history - the "Long Boom" having gone Phutt. (Where is Kevin Kelly now?)

Curiously, there is a rational case to be made for encouraging dividends, it's just that the Bush Administration isn't making it. Encouraging long-term stockholding rather than speculative day trading ought to reward profitable companies and encourage long-term investment, taking much of the volatility out of capitalism. That's a case I haven't yet heard, however. I suppose when the Big Lie has worked so effectively, there's little need to resort to reason.

But there you have it: the "Quid" to your "Pro Quo".

[ImphClinton]

Well now we konw how Microsoft got such a cozy deal.

Unfortunately we will be paying for this through way to expensive software for years to come.

I totally disagree with a dividend tax cut that will only go to the rich. If dividends are to be cut they should be cut on the corporate side. They will help everyone. As proposed it would not help 95% of stock holders who hold stock through 401K IRA or other plans.

The double tax question is just smoke. Everything is double taxed. Social Security is double taxed eliminate that. Gas tax is double taxing. Sales tax is double taxing.

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[Dog Gone]

Oh quit whining. If you have 50 bucks you can go buy a share of Microsoft and then listen to others accusing you of being rich.

[Cicero]

I'm not sure I get your point. Just because everything else is taxed and double taxed, we shouldn't cut this one? Nor is there any necessary connection between Microsoft paying a dividend and the price of Windows.

Finally, the real fix was when clinton sued Microsoft in the first place. He did so because Microsoft's rivals paid him big campaign contributions but Bill Gates didn't. Pure and simple.

At about the same time clinton showed how concerned he was to break up monopolies by letting Exxon merge with Mobil and AOL with Time/Warner.

[Mad Dawgg]

You and Willie Green should get together and start a Vaudeville act.

[Sofa King]

"Despite targeted cuts to lower income groups, the dividend exemption favors the wealthiest, as most stock holders are institutional investors or extremely loaded individuals,"

Try again. Most retirement plans include stocks, which WILL benefit people with 401ks. If companies decide to give dividends, they aren't going to exclude you just because you're in a 401k. Whoever is managing the 401k will use the money, which will not be taxed, to buy more stock

"The double tax question is just smoke. Everything is double taxed. Social Security is double taxed eliminate that. Gas tax is double taxing. Sales tax is double taxing."

How exactly is Sales tax doulbe taxing? Unless you can actually provide reasoning for that, it's nothing more than meaningless babble.

[dead]

at the eye-watering cost of $370 billion over ten years

Stealing less money from taxpayers is not a “cost.”

It’s a reduction in crime and it's always welcome.

[for-q-clinton]

Go to democraticunderground.com I think they have an opening for a socialist like you.

[lelio]

I've yet to see a paper on how cutting dividends will help out seniors and those getting income through their 401ks. Maybe the cut will help, maybe it won't. Who knows?
A sales tax is like a double tax as the gas station that sold you the pack of gum is paying property tax on the building, the corp that made the gum is paying tax, etc. That little stick of gum's got a lot of fees in there associated with taxes. Granted it isn't as direct as the dividend tax.

[for-q-clinton]

I thought the same thing when I read this article. Not once did it mention the obvious connection of IBM, Sun, Orcale, giving bigtime cash to the RATs.

But the author would rather you believe MS donated money to a senate candidate (who lost), but somehow MS knew he'd be attorney general so he could ease up on them.

This whole story is rubbish. Whether you like MS or not, this story needs to be repudiated by all.

[NittanyLion]

As proposed it would not help 95% of stock holders who hold stock through 401K IRA or other plans.

Wrong. The 401k manager will invest the money received in dividend form into additional stocks/bonds. The stock market will almost certainly get a 500-point bump as well. It certainly helps 401k holders.

[Steven W.]

IBM pays a dividend. This morning Scott McNealy said SUNW will likely pay a dividend if the legislation is passed. Similarly, Larry Ellison said the same thing for ORCL. I totally disagree with a dividend tax cut that will only go to the rich. If dividends are to be cut they should be cut on the corporate side.

Obvious socialist propaganda here. First of all, "the rich" thing is stupid and baseless. Second the liberals would have loved it if Bush had made the proposal relative to the corporate side because that would be on-its-face "giveaway to rich corporations" rather than the RATs now on defense because of the significant benefits to stockholders and the elderly who were last year's poster child as the oppressed and now this year's demons for the RATs to declare as "the rich".

[Keith]

bulls**t....everyone who owns a mutual fund, yes, even in 401Ks, will benefit from this. The only reason people look for growth funds is that someday, it will pay a dividend. There was a time when IBM, GM, etc. all were growth stocks with little to no dividend.

Microsoft was overdue to do this. There are now large funds and pension plans who could not buy MSFT because of the no dividend policy who will begin to build positions when the stock settles down. Good move Bill, regardless of your motivation.

And now that the dividends can be tax-free, investors will start to seek out more dividend paying stocks and put them on the re-investment plan to build positions.

That means a lot of the money will come right back to the corporation...utilities have benefited from this for years.

MSFT's motive notwithstanding, this is great news. BTW, how do you think people build their wealth and become rich? I'm not rich, but I will gradually add more shares in a reinvestment plan if this passes Congress.

[for-q-clinton]

So actually the argument could be made that Sun and Oracle are paying back the DOJ for fighting this case for them (using the insane logic of the author).

[for-q-clinton]

Correct me if I'm wrong, but a 401k is just tax deferred NOT tax-free. So no any dividend that goes into your 401k is tax-free. So when you withdraw your money you'll pay less tax on it.

Does that help you understand the issue a little better? I may be wrong on that, but I believe it's how it's supposed to work. But then again with all these crazy behavior modification taxes and tax incentives it's hard to tell what will happen.

[CyberCowboy777]

The administration has already been preparing the public for a move away from progressive taxation, complaining that the poor don't pay enough.

A Lie

[NittanyLion]

I've yet to see a paper on how cutting dividends will help out seniors and those getting income through their 401ks. Maybe the cut will help, maybe it won't. Who knows?

Let's say your fund manager owns 1 million shares of Microsoft. Under the current system when Microsoft pays their dividend the manager would get that amount less taxes, and then reinvest the net dividend after taxes. Maybe the dividend is $1 per share, so he'll reinvest $1 million less the tax (perhaps $700,000?). Under the new system, he'll get the full million to reinvest, thereby buying a greater number of new shares for the fund.

At least that's how I understand it will happen.

[Dog Gone]

I've yet to see a paper on how cutting dividends will help out seniors and those getting income through their 401ks.

Many seniors depend on dividend income. For years, investment advisers advised seniors to buy utility stocks for this very reason.

The tax treatment in a 401k is yet to be defined under this plan. It is true that dividend income in that account is currently tax-deferred, and the entire amount of the current dividend is allowed to grow or be reinvested. The unanswered question is whether, under this proposal, the amount of those dividends would be allowed to be withdrawn tax-FREE when withdrawals begin. If they are, and it's logical to do so, then that would be an enormous benefit to people with 401ks and IRAs.

[cartographer]

Actually, it works rather differently.

If a stock in your 401k gives a dividend, that money goes in its entirety to the 401k account. It can be fully reinvested. Only when you want to withdraw money from the account will you face any taxes, at whatever rate all gains in that 401k account are taxed.

The problem with tax-free dividends in 401k accounts as proposed is that it will turn into an accounting nightmare. Maybe there is some other way around it, but as I see it you would have to keep a record of what dividends were issued during the course of your 401k's history. This total would then be free from tax as you withdraw from the account. But what if there are additional gains or losses from this tax-free money? Is it differently treated, thus causing a cascade of paperwork?

Personally, I'd rather see a reduction in payroll taxes. People who are working for a living could use a break. Everyone who works would get a tax reduction. If we were suffering from a lack of industrial capacity, I might reconsider. But right now, factories are not running at full tilt, so building more really won't help the economy. Increased consumer wealth will.

[for-q-clinton]

Your worry about the paper trail, probably means it will be adopted. The accountants will love it, Washington will love, the people not wanting to pay an accountant will hate it. Sounds ripe for the IRS books