More of this Feature • Part 1: The Dividend Tax Cut - Bush's Plan • Part 2: The Dividend Tax Cut - Substitution of Bonds for Stocks • Part 3: The Dividend Tax Cut - How Does This Effect Interest Rates? • Part 4: The Dividend Tax Cut - How Does Interest Rate Increases from Bonds Effect You? • Part 5: The Dividend Tax Cut - The Supply Side • Part 6: The Dividend Tax Cut - Have Your Say

Related Resources • Bush Offers Dividend Tax Cut Plan • Dividend Tax Cut and Economic Stimulus Plan • White House Release - Dividend Tax Cut and Economic Stimulus Package • Tax Policy Center - Information on Dividend Tax Cut

On January 7th, 2003, the U.S. President George W. Bush announced a package of tax cuts with the hopes that, when implemented, the tax cuts will stimulate the currently slow U.S. economy. The centerpiece of the Bush plan is to eliminate the taxes investors pay on dividend income. Currently, any money an investor receives when a stock she owns pays a dividend to its investors is added to her total income at tax time. So dividend income is treated the same way, and is taxed at the same rate, as income from working. If the Bush plan becomes law, dividend income will no longer be added to an investor’s total income. As a result the dividends become exempt from taxation. The exact details of the plan are not currently known, because it has not been debated or passed by Congress yet. As well, there is some uncertainty as to how the government will define "dividend" and what exemptions, rules, and loopholes will be written into the law. For the purpose of this article, we will assume that the dividend tax cut will be wide ranging and cover most stocks when Congress passes it.

Next page > Part 2: Substitution of Stocks for Bonds > Page 1, 2, 3, 4, 5, 6.