Quit double-taxing seniors

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Quit double-taxing seniors

By Larry Craig, The Washington Times

February 4, 2003

When it comes to taxes, most of us believe that they should be as low as possible and as fair as we can make them. Unfortunately, the current tax on investment dividends fails both tests, and I'm glad President Bush has proposed eliminating that tax at the individual level. This is particularly important to 10 million senior citizens in America who pay almost half of all dividend taxes.

Not only do dividend taxes unfairly target seniors, those paying that tax also get taxed twice. Here is how it works.

Dividend-paying companies pay about 35 percent of their income in federal taxes. Taxpayers who receive dividends usually pay between 28 to 39 percent of this income in federal taxes. State and local taxes take another bite out this income. Ask yourself: "Is that fair?" Should anyone, especially older Americans who worked hard their whole life, saved and invested for their retirement, have to pay taxes on their savings twice?

No one should be taxed twice — especially seniors.

But the truth is that older Americans are being literally triple-taxed "to death." Seniors pay federal and state income taxes on Social Security payroll taxes during their working years and then pay taxes on their Social Security benefits when they retire. They are unfairly targeted by the double taxation of dividends. If seniors have anything left over, the government gets another share at the end of their life with the death tax.

To his credit, Mr. Bush has proposed to eliminate one of the least productive examples of double taxation on seniors. The United States taxes dividends at the second highest rate in the world. Even industrialized nations renowned for "democratic" socialism, such as Sweden and Germany, "only" tax dividends at a rate under 50percent. But the United States taxes dividends at just over 70 percent — the second highest rate in the world — just behind Japan, a country whose economy has been on a flat-to-downward economic spiral for the past 10 years.

Almost half of all dividend income goes to Americans age 65 and older.

Today, the Senate Aging Committee will hear from one senior who will describe the benefits of the president's proposal to eliminate the double taxation of dividends. We will hear about his 89-year-old father, a retired railroad switchman, who receives a significant share of income from corporate dividends. Our witness will also describe the benefits of the president's dividend tax proposal for his 91-year-old mother-in-law. These are real Americans on fixed incomes who could use a few more dollars in their pocket. The president's plan helps these Americans and others like them.

Clearly, America and her seniors deserve tax relief. Every inside-the-Beltway organization claiming to represent seniors interests should be foursquare behind the president's tax relief proposal. If not, they should explain to their membership why they aren't fighting for seniors.

Critics opposing the president's overall plan say it will only benefit the rich. That just isn't the case. The Bush tax-cut plan on dividends will save American taxpayers $364 billion over the next 10 years — that's money that seniors can use to purchase prescription drugs and others can use to help further stimulate our economy. Let's face it; $364 billion will help lift all parts of our economy. Everyone will benefit from this plan.

Of course, ending double taxation of dividends isn't the only item in the tax-relief package the president has in mind.

Under the president's proposal, families with incomes over $100,000 would end up paying a larger share of the total income tax. These families would pay 73 percent of all federal income taxes.

On the flip side, a family of four earning $40,000 a year would see a 96 percent federal tax cut under the president's tax plan! That's just over $1,000 more a year in savings that people can use to replace old appliances, improve their home, invest in a small business, or buy something for the kids. And contrary to what my colleagues on the Democratic side may claim, an American earning $40,000 a year does not consider herself "rich."

The president's relief from double taxation of dividends will increase incentives for Americans to save for their own retirement. That is especially important for tomorrow's senior citizens. The personal savings rate has been extremely low for years. Studies show most Americans are not financially prepared for retirement and the president's tax-relief plan will aid all Americans on this concern.

Unfortunately, Democratic Senate Minority Leader Tom Daschle has declared the president's tax relief from double taxation of dividends dead on arrival." Seniors in America ought to be insulted by this statement, based on the facts of the president's overall tax-relief proposal. I hope my colleague will reconsider his position, for the sake of America and her seniors.

Larry Craig is a Republican senator from Idaho.