Tax Guru-Ker$tetter Letter

Friday, May 16, 2003

The 2001 Tax Cut Did Make a Difference

Politics vs. Economics

Firms Cautious on Prospect of Dividend Tax Change

While we will definitely be very happy to have dividends tax free, and will almost certainly start paying them out after the new law takes effect, people do need to remember that this upcoming change is currently for Federal income tax purposes only. Whether or not the same tax break will apply to State income taxes will have to be seen. Many States have their income tax calculations based on the Federal number, so Federal changes would automatically affect those states, unless their rulers pass special legislation specifically denying those changes at their State level. Other states, such as here in Arkansas, have independent tax calculations and have to themselves pass special legislation to conform with any new Federal rules. That often taxes a few years to happen, making it trickier than normal to calculate taxes until the State and Federal rules are back in synch with each other. With the current financial and budget crises faced by most State governments, there will definitely be some hesitation at enacting anything that they think may reduce their revenue. Hopefully, State rulers will look at the long term perspective and realize that, if they don't allow their residents the same tax breaks as the Feds do, people will move to States that do. Money is a big motivator of behavior, and sooner or later, the additional costs of living in a certain State become too high to tolerate in comparison to other less expensive States.

Democrats wary of plan to cut 1 percent of budget fat - For the Dims, it's absolute heresy for the size or cost of government to ever decrease. Their one main purpose in life is to continue the growth of government involvement in every aspect of our lives. Less money means less power; something they will never sit still for.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 5/16/2003 11:17:00 AM Send this post: