beliavsky[at]aol.com wrote:
- quote -

Aw c'mon B, it didn't find that at all - not even close. How on earth
could a study of investor holdings from 1991 to 1996 "find that the
dividend tax cut engineered by Bush is benefitting many older & less
wealthy investors"? The best it could do is show patterns that might
indicate who benefits today, and from my read, it actually shows the
exact opposite!

The study apparently showed that older people and lower-income investors
had a measurable preference for dividend paying stocks. The first isn't
so interesting, the second one kind of is.

But it doesn't change the fact that low-income people hold very little
stock, which is the criticism of the div-tax cut (rather than, say,
cutting the tax on Social Security). Even the sample shows it: only 17%
of the investor sample was "low income," and of course - by definition -
their holdings were small compared to the high & middle income
investors. The low-income/65+ represented less than 5% of the sample.
That's the issue...so what if low-income investors prefer dividends,
they're still only getting a tiny percentage of the dividends paid. So
by definition they benefit a lot less from the tax cut.

It's even worse though because the authors are sloppy, and perhaps
biased, in their definitions of investor groups. They define a "low
income household" as below $40k. But $40k was actually $5,000 over the
median household income back in 1996, let alone 1991 (when it was $30k).
Their "lower income investor" is actually "upper middle class" if you
compare it to the US census data on household income. If they really
looked at lower income investors I'm not sure they'd have much of a
sample. It's worse for older folks, whose household incomes as a group
are generally lower.

And the study arguably supports the idea that div-tax-cuts benefit the
rich...it looked at the effect of a 1992 tax increase on the preference
for dividend-paying stock and (no surprise) saw a bigger change in
behavior (away from div stocks) among the high-income ($125k) subset. I
see no reason the opposite wouldn't apply - that with dividends lowered
to 15% that same group will increase their exposure to, and
participation in, dividends. So they'll get more of the benefit...they
increase their exposure, and have more money to invest.

Look, the idea that a dividend tax cut primarily benefits the rich is
essentially tautological. Most dividends flow to the rich, and most
taxes are paid by the rich. A study whose conclusion suggests otherwise,
while the data actually shows something else, brings the credibility of
the authors into question in my book.

-Tad

In article <3064b51d.0401230634.71522633[at]posting.google.com> , beliavsky[at]aol.com
writes:

- quote -

It appears to be more of a political statement than a study!!!=


"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

A recent paper has found that the dividend tax cut engineered by
President Bush is benefitting many older and less wealthy investors,
contrary to the claims of some critics. The paper can be downloaded
from http://papers.ssrn.com/sol3/papers.c...ract_id=482563 . The
abstract is pasted below.

Do Dividend Clienteles Exist? Evidence on Dividend Preferences of
Retail Investors

JOHN R. GRAHAM
Duke University
ALOK KUMAR
University of Notre Dame - Mendoza College of Business

Abstract:
We study the stock holdings and trading behavior of a representative
group of more than 60,000 households and find evidence consistent with
dividend clienteles. The stock holdings of retail investors indicate a
preference for dividend yield that increases with risk aversion and
age (the latter is consistent with life-cycle or consumption
preferences) and decreases with income (consistent with low-tax
investors holding high-yield stocks).

The stock trading behavior of retail investors provide reinforcing
evidence of these dividend preferences. Older, low-income investors
disproportionally purchase stocks before the ex-dividend day. Among
small stocks, the ex-day premium increases with age and decreases with
income, which is consistent with tax explanations of the ex-day
premium. We also find evidence that older, low-income investors
purchase stocks after they initiate dividends. Finally, consistent
with the behavioral "attention" hypothesis, we document that older and
low-income investors purchase stocks following dividend announcements.

These results have important policy implications because they indicate
that recent reductions in the dividend tax rate are not exclusively a
"tax break for the rich." In fact, the income streams of older and
less wealthy investors benefit from the reduction in dividend taxes.

Keywords: Retail investors, Dividend clienteles, Dividend events,
Attention hypothesis.
JEL Classifications: G11, G14, G35