Posted on 01/17/2003 1:50:34 PM PST by 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".
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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at the eye-watering cost of $370 billion over ten years
Stealing less money from taxpayers is not a cost.
Its a reduction in crime and it's always welcome.
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.
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.
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".
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.
A Lie
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.
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.
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