Taxing dividends, at remittance to shareholders, instead takes money from companies that cannot identify new areas for growth, i.e. ones that have already largely succeeded.Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral student at the University of California, Berkeley.since the early 2000s. While overcoming these challenges requires a multitude of solutions, we can get a head start by simply taxing dividends instead of corporate profits.
This means that our profit tax hurts companies while they are still growing because it results in them having fewer funds to invest in the ways that they would like. A dividend tax solves this issue while still making corporate shareholders pay their fair share. This is not a new idea. It is precisely the argument made in 2021 by Eduardo Davila at the Yale School of Management and Benjamin Hébert of Berkeley’s Haas School of Business. In apublished in the Review of Economic Studies, they show how a dividend tax sorts out and taxes only the “unconstrained firms” – already successful ones that have enough to pay dividends – leaving more breathing room for those that do not have enough cash to cover new research projects or capital expenditures.
A point of confusion here is that it may seem like a dividend tax punishes shareholders, many of whom depend on these dividends for their retirement earnings or general savings, and who already pay some income taxes on their end for receiving dividends.