WEBVTT 00:00:00.000 --> 00:00:02.640 Welcome to the deep dive. Today, we're getting 00:00:02.640 --> 00:00:05.480 into something that on the surface might seem 00:00:05.480 --> 00:00:08.000 a bit dry, the dividend tax. Right. Sounds like 00:00:08.000 --> 00:00:10.259 something just for accountants. Exactly. But 00:00:10.259 --> 00:00:11.800 we're going to show you that this is so much 00:00:11.800 --> 00:00:15.220 more than a line on a tax form. It's really a 00:00:15.220 --> 00:00:18.960 battleground for big ideas, economic theory, 00:00:19.219 --> 00:00:22.300 political philosophy, even global competition. 00:00:22.679 --> 00:00:25.339 It really is. The way a country decides to tax 00:00:25.339 --> 00:00:28.039 dividends says a lot about what it values. And 00:00:28.039 --> 00:00:31.019 our source material for this is a really extensive... 00:00:31.050 --> 00:00:34.250 overview of global dividend tax policies. So 00:00:34.250 --> 00:00:36.289 our goal here for you is to have you walk away 00:00:36.289 --> 00:00:39.810 with a solid grasp of what this tax is, why it 00:00:39.810 --> 00:00:42.210 kicks off this huge double taxation debate. A 00:00:42.210 --> 00:00:44.469 very fierce debate. Oh, absolutely. And also 00:00:44.469 --> 00:00:46.609 how differently countries all over the world 00:00:46.609 --> 00:00:49.049 handle it, which in turn creates these wildly 00:00:49.049 --> 00:00:51.390 different incentives for companies and for investors. 00:00:51.729 --> 00:00:53.789 So let's just dive in. First principles. What 00:00:53.789 --> 00:00:55.890 exactly is a dividend tax? The simplest terms. 00:00:56.090 --> 00:00:58.850 In simple terms, it's a tax that a government 00:00:58.850 --> 00:01:01.729 levies on dividends. And those dividends are 00:01:01.729 --> 00:01:04.329 just the slice of a company's profits that it 00:01:04.329 --> 00:01:06.969 decides to hand out to its shareholders. It's 00:01:06.969 --> 00:01:09.489 basically a tax on the income you get from owning 00:01:09.489 --> 00:01:12.129 a piece of a company. Okay. And who actually 00:01:12.129 --> 00:01:14.129 pays it? Because it's not always as simple as 00:01:14.129 --> 00:01:16.129 the shareholder just writing a check. No, not 00:01:16.129 --> 00:01:19.170 at all. That's a great point. The primary legal 00:01:19.170 --> 00:01:22.109 liability, so the actual obligation, that rests 00:01:22.109 --> 00:01:24.530 with the shareholder who gets the money. But, 00:01:24.670 --> 00:01:28.650 and this is a big but. In a lot of systems, the 00:01:28.650 --> 00:01:31.209 corporation paying the dividend has to apply 00:01:31.209 --> 00:01:33.950 a withholding tax. So they hold back a certain 00:01:33.950 --> 00:01:36.870 percentage, say 15 or 30 percent, and pay that 00:01:36.870 --> 00:01:38.349 straight to the government. Before the investor 00:01:38.349 --> 00:01:40.450 even sees it. Before the investor sees a dime. 00:01:40.629 --> 00:01:43.129 Now, for someone investing in their own country, 00:01:43.310 --> 00:01:45.790 that withheld amount is usually just a credit 00:01:45.790 --> 00:01:48.469 towards their final tax bill. But for an international 00:01:48.469 --> 00:01:51.530 shareholder, that withholding tax might be the 00:01:51.530 --> 00:01:53.849 only tax they pay in that country. It's a huge 00:01:53.849 --> 00:01:57.170 deal for tax treaties. And this right here brings 00:01:57.170 --> 00:01:59.769 us to the core issue, the central tension we're 00:01:59.769 --> 00:02:02.269 going to be talking about all day. This tax is 00:02:02.269 --> 00:02:05.030 applied on top of the corporate income tax. Exactly. 00:02:05.189 --> 00:02:07.959 The company makes a profit. It pays tax on that 00:02:07.959 --> 00:02:11.180 profit. Then it distributes some of what's left 00:02:11.180 --> 00:02:13.680 and that distribution gets taxed again. That's 00:02:13.680 --> 00:02:15.879 the double taxation everyone's always arguing 00:02:15.879 --> 00:02:18.479 about. The same dollar of profit is getting hit 00:02:18.479 --> 00:02:20.960 twice. That's the phrase that defines the entire 00:02:20.960 --> 00:02:23.379 landscape. It's taxed at the entity level, the 00:02:23.379 --> 00:02:25.219 corporation, and then again at the investor level, 00:02:25.340 --> 00:02:27.759 the shareholder. So naturally, because the second 00:02:27.759 --> 00:02:30.180 tax exists, companies and their owners have found 00:02:30.180 --> 00:02:32.939 some, let's say, creative ways to get money out 00:02:32.939 --> 00:02:35.080 without actually calling it a dividend. What 00:02:35.080 --> 00:02:37.599 are the main strategies they use? The biggest 00:02:37.599 --> 00:02:39.780 one, and you see this everywhere, is the share 00:02:39.780 --> 00:02:43.699 buyback or share repurchase. This is the go -to 00:02:43.699 --> 00:02:46.479 move in any country where the tax on capital 00:02:46.479 --> 00:02:49.099 gains is lower than the tax on dividends. OK, 00:02:49.180 --> 00:02:51.139 so walk me through that. Why is a buyback different 00:02:51.139 --> 00:02:53.520 from a dividend from a tax perspective? It's 00:02:53.520 --> 00:02:55.969 all about classification. When a company pays 00:02:55.969 --> 00:02:58.469 you a cash dividend, that's usually taxed as 00:02:58.469 --> 00:03:01.189 ordinary income or whatever the specific dividend 00:03:01.189 --> 00:03:04.150 tax rate is. But when the company buys back its 00:03:04.150 --> 00:03:06.849 own shares, the shareholder is effectively selling 00:03:06.849 --> 00:03:09.530 an asset. Ah, so it becomes a sale. It becomes 00:03:09.530 --> 00:03:12.629 a sale. And that generates a capital gain, which 00:03:12.629 --> 00:03:15.449 in most places is taxed at a much lower preferential 00:03:15.449 --> 00:03:18.169 rate. So if your capital gains rate is, say, 00:03:18.229 --> 00:03:22.729 15%, but your dividend rate is 35%. It's a no 00:03:22.729 --> 00:03:25.830 -brainer. The shareholder has a massive tax incentive 00:03:25.830 --> 00:03:28.590 to pressure the company to do buybacks instead 00:03:28.590 --> 00:03:31.449 of dividends. It's a very efficient way to turn 00:03:31.449 --> 00:03:34.270 highly taxed income into lower taxed income. 00:03:34.449 --> 00:03:36.229 And it also has the side effect of potentially 00:03:36.229 --> 00:03:39.150 boosting the stock price for the remaining shares. 00:03:39.310 --> 00:03:42.090 A kind of win -win for the shareholders, even 00:03:42.090 --> 00:03:44.090 if it's not always the most productive use of 00:03:44.090 --> 00:03:46.689 that cash. Absolutely. The second big strategy 00:03:46.689 --> 00:03:49.090 is, well, even simpler. Just don't pay anything 00:03:49.090 --> 00:03:51.590 out. Retained earnings. Retained earnings. The 00:03:51.590 --> 00:03:53.389 corporation just holds onto its surplus cash. 00:03:53.770 --> 00:03:56.150 That increases the company's book value and, 00:03:56.250 --> 00:03:58.370 in theory, the market value of the shares over 00:03:58.370 --> 00:04:01.349 time. And you only pay tax on that growth way 00:04:01.349 --> 00:04:03.650 down the line when you finally decide to sell 00:04:03.650 --> 00:04:06.229 the stock. Exactly. The tax is deferred. And 00:04:06.229 --> 00:04:08.569 when you do pay it, it's at that lower capital 00:04:08.569 --> 00:04:11.009 gains rate. So you get deferral and a lower rate. 00:04:11.189 --> 00:04:14.030 It's a very powerful tool for building wealth, 00:04:14.189 --> 00:04:16.449 even if it means capital gets sort of locked 00:04:16.449 --> 00:04:19.029 up inside the company. Right. Now, with private 00:04:19.029 --> 00:04:21.310 companies, it seems like it would be really easy 00:04:21.310 --> 00:04:24.170 for the owner to just borrow money from their 00:04:24.170 --> 00:04:26.470 own company forever instead of taking a dividend. 00:04:26.750 --> 00:04:29.730 How do governments stop that? That's a huge loophole, 00:04:29.810 --> 00:04:31.970 and that's where deemed dividend rules come in. 00:04:32.069 --> 00:04:34.430 This is critical anti -avoidance law in a lot 00:04:34.430 --> 00:04:37.290 of countries. Deemed dividend. Yeah. For a private 00:04:37.290 --> 00:04:39.569 company, the owner could just use company money 00:04:39.569 --> 00:04:43.410 to buy a car, pay for a vacation, or take a giant 00:04:43.410 --> 00:04:45.509 low -interest loan. They're getting the benefit 00:04:45.509 --> 00:04:47.810 of the profits. Without the tax bill of a dividend. 00:04:48.209 --> 00:04:51.889 Precisely. So to shut that down, tax authorities 00:04:51.889 --> 00:04:54.610 have rules that deem those kinds of transactions, 00:04:54.910 --> 00:04:57.930 like a loan that's not at a commercial rate. 00:04:58.379 --> 00:05:00.459 or a salary that's way too high for the work 00:05:00.459 --> 00:05:02.579 being done. They treat it as if it were a formal 00:05:02.579 --> 00:05:05.519 dividend for tax purposes. If they didn't, the 00:05:05.519 --> 00:05:07.560 dividend tax would be basically optional for 00:05:07.560 --> 00:05:10.060 any small business owner. That sets the stage 00:05:10.060 --> 00:05:12.040 perfectly. You have the tax, but you also have 00:05:12.040 --> 00:05:14.259 these powerful incentives to work around it. 00:05:14.980 --> 00:05:17.839 Okay, let's go back in time for Section 1 and 00:05:17.839 --> 00:05:20.439 trace how this whole thing started. The U .S. 00:05:20.459 --> 00:05:21.939 history is a great place to start because it's 00:05:21.939 --> 00:05:24.350 just been so... volatile. It's been a real roller 00:05:24.350 --> 00:05:27.129 coaster. But if you look at the origins of income 00:05:27.129 --> 00:05:29.829 tax systems in general, you see this philosophical 00:05:29.829 --> 00:05:31.889 fight over dividends right from the beginning. 00:05:32.009 --> 00:05:34.629 In the very early days, there was a strong argument 00:05:34.629 --> 00:05:37.259 to just exempt them completely. And the logic 00:05:37.259 --> 00:05:39.939 there was simply to avoid double taxation. Yes, 00:05:40.120 --> 00:05:42.519 that was the core principle. The economic thinking 00:05:42.519 --> 00:05:44.540 was, look, the corporation already paid tax. 00:05:44.779 --> 00:05:46.740 Hitting the shareholder again is just unfair, 00:05:46.920 --> 00:05:49.279 discourages investment. And that idea of fairness 00:05:49.279 --> 00:05:51.420 was actually pretty powerful in shaping early 00:05:51.420 --> 00:05:53.920 tax law. But I imagine the government's need 00:05:53.920 --> 00:05:56.740 for money eventually won out. It always does, 00:05:56.899 --> 00:05:59.920 doesn't it? The first real documented dividend 00:05:59.920 --> 00:06:02.759 taxes pop up in the 17th century. We see them 00:06:02.759 --> 00:06:04.899 in places like the Netherlands and England. The 00:06:04.899 --> 00:06:07.339 big commercial powers of the time. Exactly. They 00:06:07.339 --> 00:06:09.899 had sophisticated markets and they realized that 00:06:09.899 --> 00:06:12.740 profits going to capital owners were a clear 00:06:12.740 --> 00:06:16.339 taxable source of wealth. Yeah. Then as you move 00:06:16.339 --> 00:06:18.639 into the 19th century and more countries adopt 00:06:18.639 --> 00:06:21.259 modern income taxes, the dividend tax becomes 00:06:21.259 --> 00:06:23.680 pretty standard. It's a reliable source of revenue. 00:06:23.939 --> 00:06:26.819 OK, so let's zoom in on the U .S. The story really 00:06:26.819 --> 00:06:29.819 kicks off in 1913. Right. With the 16th Amendment, 00:06:29.959 --> 00:06:31.860 which gave Congress the power to levy an income 00:06:31.860 --> 00:06:35.639 tax. The Revenue Act of 1913 that followed. it 00:06:35.639 --> 00:06:38.459 created a really gentle tax system. The personal 00:06:38.459 --> 00:06:41.500 income tax was just 1%, with a few surtaxes on 00:06:41.500 --> 00:06:44.100 top for the wealthy. And the corporate tax was 00:06:44.100 --> 00:06:46.819 also 1%. So how did they handle dividends in 00:06:46.819 --> 00:06:49.079 that very first system? It wasn't full -on double 00:06:49.079 --> 00:06:51.019 taxation, was it? No, it was actually a really 00:06:51.019 --> 00:06:52.639 interesting compromise. They were clearly trying 00:06:52.639 --> 00:06:55.540 to avoid that double hit. So dividends were completely 00:06:55.540 --> 00:06:58.220 exempt from that main 1 % personal income tax. 00:06:58.379 --> 00:07:01.519 But, and this is the key, they were not exempt 00:07:01.519 --> 00:07:04.800 from the surtaxes. which only kicked in for incomes 00:07:04.800 --> 00:07:08.560 over $20 ,000, a huge amount of money back then. 00:07:08.660 --> 00:07:11.259 So it was a way to tax the dividend income of 00:07:11.259 --> 00:07:13.899 the very wealthy without hitting small investors 00:07:13.899 --> 00:07:16.220 with that double whammy. Exactly. It was a kind 00:07:16.220 --> 00:07:19.879 of an early, maybe clumsy attempt at integrating 00:07:19.879 --> 00:07:22.420 the two tax systems. But that nuance didn't last 00:07:22.420 --> 00:07:24.720 long. The Great Depression changed everything. 00:07:24.939 --> 00:07:27.220 It really did. The government was desperate for 00:07:27.220 --> 00:07:29.959 revenue to fund New Deal programs. So between 00:07:29.959 --> 00:07:33.420 1936 and 1939, Congress just reversed course 00:07:33.420 --> 00:07:36.019 completely. Dividends were made fully taxable 00:07:36.019 --> 00:07:37.939 at the individual's ordinary income tax rate. 00:07:38.100 --> 00:07:40.120 So the double taxation argument just went out 00:07:40.120 --> 00:07:42.160 the window. It took a backseat to the national 00:07:42.160 --> 00:07:44.540 emergency. That period is really what established 00:07:44.540 --> 00:07:47.199 the principle of full classical double taxation 00:07:47.199 --> 00:07:50.120 in the U .S. system. So what happened after the 00:07:50.120 --> 00:07:52.079 war? Did they stick with that high tax model? 00:07:52.379 --> 00:07:54.959 No, the pendulum started to swing back. The 1950s 00:07:54.959 --> 00:07:57.079 brought a new focus on, you know, encouraging 00:07:57.079 --> 00:07:59.459 investment and capital formation. The Tax Reform 00:07:59.459 --> 00:08:02.779 Act of 1954 was a big step. It created a separate 00:08:02.779 --> 00:08:05.399 lower rate for dividends. An acknowledgment that 00:08:05.399 --> 00:08:08.379 the full rate was maybe too punitive. Right. 00:08:08.500 --> 00:08:11.279 And that was built upon in 1981 with another 00:08:11.279 --> 00:08:13.639 act that brought in more exemptions and credits, 00:08:13.819 --> 00:08:16.759 all designed to lessen the tax burden on dividend 00:08:16.759 --> 00:08:20.360 income. So we swing from full taxation to preferential 00:08:20.360 --> 00:08:22.920 treatment. But then it swings back again in the 00:08:22.920 --> 00:08:26.399 80s. A huge swing back. For an 18 -year period. 00:08:26.810 --> 00:08:30.529 From 1985 all the way to 2003, dividends were 00:08:30.529 --> 00:08:32.730 once again taxed at the same rate as ordinary 00:08:32.730 --> 00:08:35.710 income. The big push at the time, especially 00:08:35.710 --> 00:08:38.330 the Reagan -era reforms, was for simplification. 00:08:38.490 --> 00:08:41.490 A flatter, simpler tax code. Exactly. Treat all 00:08:41.490 --> 00:08:43.690 income the same. But that meant if you were in 00:08:43.690 --> 00:08:45.629 the top bracket, your dividends could be taxed 00:08:45.629 --> 00:08:48.230 at rates well over 40%, sometimes climbing towards 00:08:48.230 --> 00:08:50.649 50%. That was really the high watermark for double 00:08:50.649 --> 00:08:53.179 taxation in the modern U .S. Which brings us 00:08:53.179 --> 00:08:55.820 to probably the single biggest shift in a century, 00:08:56.019 --> 00:08:59.240 the Bush tax cuts in 2003. What was the thinking 00:08:59.240 --> 00:09:01.639 behind that dramatic cut? It was a mix of things. 00:09:01.759 --> 00:09:04.220 There was a desire for economic stimulus after 00:09:04.220 --> 00:09:07.419 the dot -com bust and the recession, and a very 00:09:07.419 --> 00:09:09.799 strong philosophical argument against double 00:09:09.799 --> 00:09:13.100 taxation. President Bush made it a centerpiece 00:09:13.100 --> 00:09:15.899 of his platform, arguing it was just unfair and 00:09:15.899 --> 00:09:18.840 bad for the economy, especially for seniors living 00:09:18.840 --> 00:09:20.960 on investment income. And the result was the 00:09:20.960 --> 00:09:24.639 JGTRRA. The Jobs and Growth Tax Relief Reconciliation 00:09:24.639 --> 00:09:29.620 Act of 2003. A mouthful. But it completely changed 00:09:29.620 --> 00:09:32.259 the landscape by creating this new category called 00:09:32.259 --> 00:09:35.220 a qualified dividend. And suddenly that term 00:09:35.220 --> 00:09:37.919 was everywhere. What was the magic of being qualified? 00:09:38.320 --> 00:09:40.419 The magic was that your dividend was no longer 00:09:40.419 --> 00:09:42.879 taxed at your ordinary income rate. Instead, 00:09:42.980 --> 00:09:45.220 it was taxed at the much, much lower long -term 00:09:45.220 --> 00:09:47.879 capital gains rate. All of a sudden, income that 00:09:47.879 --> 00:09:50.509 might have been taxed at... 35 or almost 40 % 00:09:50.509 --> 00:09:53.830 was now taxed at a maximum of 15 % for most people. 00:09:53.889 --> 00:09:56.090 That is a massive shift. A monumental victory 00:09:56.090 --> 00:09:58.590 for opponents of double taxation. But those rates 00:09:58.590 --> 00:10:00.950 were temporary. They were set to expire, which 00:10:00.950 --> 00:10:03.490 created this huge fiscal cliff situation about 00:10:03.490 --> 00:10:05.590 a decade later under the Obama administration. 00:10:05.950 --> 00:10:08.970 A huge moment of drama. If they had done nothing, 00:10:09.090 --> 00:10:10.750 the rates would have snapped back to the old 00:10:10.750 --> 00:10:14.419 system. Top rates back near 40%. To avoid that 00:10:14.419 --> 00:10:16.600 shock, which people were calling taxmageddon, 00:10:16.679 --> 00:10:19.220 Congress passed the American Taxpayer Relief 00:10:19.220 --> 00:10:23.299 Act of 2012, or ATRA. And ATRA was a compromise, 00:10:23.519 --> 00:10:25.519 right? It kept the low rates for most people 00:10:25.519 --> 00:10:28.019 but added a new, higher tier. That's exactly. 00:10:28.240 --> 00:10:30.399 It made the Bush era rates permanent for lower 00:10:30.399 --> 00:10:32.840 - and middle -income taxpayers, but for the highest 00:10:32.840 --> 00:10:35.110 earners. We're talking people with incomes over 00:10:35.110 --> 00:10:38.809 $400 ,000 or $450 ,000. It raised their qualified 00:10:38.809 --> 00:10:41.889 dividend rate from 15 % up to 20%. So let's just 00:10:41.889 --> 00:10:44.289 nail down how it works now, since 2003. It's 00:10:44.289 --> 00:10:46.529 not one flat rate for everyone. No. It's very 00:10:46.529 --> 00:10:48.389 progressive. It's tied to your ordinary income 00:10:48.389 --> 00:10:50.850 tax bracket. So people in the lowest brackets, 00:10:50.990 --> 00:10:53.710 the 10 % and 15 % brackets, they initially paid 00:10:53.710 --> 00:10:56.470 a 5 % tax on their dividends. But here's a wild 00:10:56.470 --> 00:10:59.269 detail. From 2008 to 2012, that rate was cut 00:10:59.269 --> 00:11:03.029 to zero. 0%, a federal tax rate of zero on dividend 00:11:03.029 --> 00:11:06.129 income. Zero. It's a huge incentive for people 00:11:06.129 --> 00:11:09.470 just starting out or for retirees. And that 0 00:11:09.470 --> 00:11:11.929 % rate has mostly stayed in place for those lower 00:11:11.929 --> 00:11:14.009 brackets. Yeah. Then you have the big middle 00:11:14.009 --> 00:11:16.389 chunk of taxpayers. They've consistently paid 00:11:16.389 --> 00:11:20.269 15%. And only the very top earners, the ones 00:11:20.269 --> 00:11:22.549 in the highest income bracket, pay that 20 % 00:11:22.549 --> 00:11:24.570 rate. But wait, there's another layer, something 00:11:24.570 --> 00:11:27.210 that came in with the Affordable Care Act, the 00:11:27.210 --> 00:11:30.350 NIIT. Yes. You can't forget the net investment 00:11:30.350 --> 00:11:32.350 income tax. It's a crucial part of the modern 00:11:32.350 --> 00:11:35.549 system. It came into effect in 2013. And it's 00:11:35.549 --> 00:11:38.309 a separate 3 .8 % tax that applies to, well, 00:11:38.409 --> 00:11:40.570 net investment income. So that includes dividend. 00:11:40.950 --> 00:11:43.610 It includes dividends, capital gains, rent. all 00:11:43.610 --> 00:11:45.409 that passive income. And who pays this extra 00:11:45.409 --> 00:11:48.029 3 .8 percent? It's specifically targeted at high 00:11:48.029 --> 00:11:50.090 earners. It kicks in for married couples with 00:11:50.090 --> 00:11:53.450 a modified adjusted gross income over $250 ,000 00:11:53.450 --> 00:11:56.970 and for single people over $200 ,000. And it's 00:11:56.970 --> 00:11:58.809 in addition to the regular dividend tax. It's 00:11:58.809 --> 00:12:00.370 not a replacement. And the really critical thing 00:12:00.370 --> 00:12:03.289 about that threshold, the $250 ,000, it's stuck. 00:12:03.509 --> 00:12:06.409 That's the part people miss. It is not indexed 00:12:06.409 --> 00:12:09.820 for inflation. So every single year. As wages 00:12:09.820 --> 00:12:12.039 and prices rise, more and more people are going 00:12:12.039 --> 00:12:14.039 to cross that line and get hit with this extra 00:12:14.039 --> 00:12:16.200 tax. It's what's known as bracket creep. So a 00:12:16.200 --> 00:12:18.120 tax that was meant for the very wealthy will, 00:12:18.259 --> 00:12:20.620 over time, start to affect more of the upper 00:12:20.620 --> 00:12:22.860 middle class. That means that the top effective 00:12:22.860 --> 00:12:25.519 federal rate on qualified dividends today is 00:12:25.519 --> 00:12:29.259 23 .8 percent. The 20 percent plus the 3 .8. 00:12:29.399 --> 00:12:31.200 And that number is just going to apply to more 00:12:31.200 --> 00:12:33.240 and more people as time goes on. It's just a 00:12:33.240 --> 00:12:35.799 perfect summary of the whole story. A century 00:12:35.799 --> 00:12:38.100 of swinging back and forth, ending with this 00:12:38.100 --> 00:12:41.519 incredibly complex tiered system with this extra 00:12:41.519 --> 00:12:44.000 unindexed levy on top. It shows there's just 00:12:44.000 --> 00:12:46.919 no consensus. That lack of consensus is the perfect 00:12:46.919 --> 00:12:49.340 entry point for Section 2, the core conflict. 00:12:49.559 --> 00:12:51.879 Let's unpack the arguments. Why do some people 00:12:51.879 --> 00:12:54.539 see this tax as completely necessary and fair? 00:12:55.159 --> 00:12:57.340 Let's start with the pro -tax side, the separate 00:12:57.340 --> 00:13:00.019 entity perspective. Okay, so the whole foundation 00:13:00.019 --> 00:13:02.960 for this argument is the legal basis of a corporation. 00:13:03.299 --> 00:13:06.840 The idea that a corporation is, legally speaking, 00:13:07.139 --> 00:13:10.700 a person. It's a separate entity from its owners, 00:13:10.799 --> 00:13:13.519 with its own rights and its own responsibilities. 00:13:13.539 --> 00:13:15.879 And the single biggest benefit it gets from being 00:13:15.879 --> 00:13:18.779 a separate person is limited liability. Absolutely. 00:13:18.940 --> 00:13:21.500 That is the holy grail. It means if the company 00:13:21.500 --> 00:13:24.399 fails... If it goes bankrupt, your personal assets 00:13:24.399 --> 00:13:26.840 are safe. The creditors can't come after your 00:13:26.840 --> 00:13:29.720 house. You only lose what you invested. And the 00:13:29.720 --> 00:13:32.000 argument is that this huge privilege isn't just 00:13:32.000 --> 00:13:35.179 a given. It's granted by society. Exactly. It's 00:13:35.179 --> 00:13:37.299 not a natural right. Yeah. So there has to be 00:13:37.299 --> 00:13:39.600 a price for it. And our source material quotes 00:13:39.600 --> 00:13:41.820 Professor Ahmadi on this. And he's a very clear 00:13:41.820 --> 00:13:43.559 argument. I remember that. He says the corporate 00:13:43.559 --> 00:13:45.919 income tax is the price you pay for limited liability. 00:13:46.559 --> 00:13:50.200 And on top of that, this separate legal. person, 00:13:50.340 --> 00:13:53.440 the corporation, it uses public goods. It uses 00:13:53.440 --> 00:13:56.299 roads. It relies on courts to enforce contracts. 00:13:56.519 --> 00:13:59.080 It benefits from a national defense. So it has 00:13:59.080 --> 00:14:02.039 its own independent duty to pay taxes to support 00:14:02.039 --> 00:14:04.700 all that. And the scale of this is just enormous. 00:14:05.039 --> 00:14:07.159 The sources point out that while corporations 00:14:07.159 --> 00:14:09.740 are less than 20 percent of firms in the U .S., 00:14:09.740 --> 00:14:12.039 they generate something like 90 percent of the 00:14:12.039 --> 00:14:14.500 revenue. The economic power that comes from that 00:14:14.500 --> 00:14:17.480 legal status is immense. So the logic follows. 00:14:18.159 --> 00:14:20.960 If the corporation is person A and the shareholder 00:14:20.960 --> 00:14:24.299 is person B, then when money moves from A to 00:14:24.299 --> 00:14:27.700 B, that's a new taxable event, just like your 00:14:27.700 --> 00:14:30.019 salary is a taxable event. So from that perspective, 00:14:30.179 --> 00:14:33.159 it's not double taxation at all. It's just taxation, 00:14:33.419 --> 00:14:36.240 two separate entities, two separate taxes. That's 00:14:36.240 --> 00:14:38.399 the legal argument. There's also an equity argument. 00:14:38.600 --> 00:14:40.500 Why should someone who earns money from sitting 00:14:40.500 --> 00:14:43.059 on a pile of stocks be taxed less than someone 00:14:43.059 --> 00:14:45.269 who earns it through their labor every day? A 00:14:45.269 --> 00:14:47.870 very powerful political argument. OK, now let's 00:14:47.870 --> 00:14:49.549 flip it completely. Let's look at the argument 00:14:49.549 --> 00:14:51.549 against the dividend tax. This is the one you 00:14:51.549 --> 00:14:53.850 hear from groups like the Cato Institute. Why 00:14:53.850 --> 00:14:55.929 do they say it's so damaging? Their argument 00:14:55.929 --> 00:14:58.070 is that the legal fiction is just that, a fiction. 00:14:58.450 --> 00:15:00.990 The economic reality is that only people can 00:15:00.990 --> 00:15:04.090 pay taxes. A corporation can't. And according 00:15:04.090 --> 00:15:06.009 to economists at places like the Treasury and 00:15:06.009 --> 00:15:09.370 the CBO, the burden of the corporate tax falls 00:15:09.370 --> 00:15:12.409 almost entirely on the owners of capital. On 00:15:12.409 --> 00:15:15.000 the shareholders. On the shareholders. So when 00:15:15.000 --> 00:15:17.039 you tax the corporation and then tax the dividend, 00:15:17.279 --> 00:15:20.879 you are, in economic reality, taxing the same 00:15:20.879 --> 00:15:23.580 person twice on the same stream of income. And 00:15:23.580 --> 00:15:26.179 they say this creates huge distortions in the 00:15:26.179 --> 00:15:28.120 economy. Let's start with the one about debt. 00:15:28.539 --> 00:15:31.059 This is probably the biggest one. Interest that 00:15:31.059 --> 00:15:33.299 a company pays on its debt is tax deductible. 00:15:33.620 --> 00:15:36.179 But dividends it pays on its equity are not. 00:15:36.440 --> 00:15:39.200 The tax code subsidizes borrowing. It creates 00:15:39.200 --> 00:15:41.480 a massive artificial bias towards debt financing 00:15:41.480 --> 00:15:43.759 over equity financing. This encourages companies 00:15:43.759 --> 00:15:46.320 to load up on debt, to become highly leveraged, 00:15:46.379 --> 00:15:48.200 and that makes the whole economy more fragile. 00:15:48.360 --> 00:15:51.000 When a recession hits, it's those highly indebted 00:15:51.000 --> 00:15:53.440 companies that go bankrupt first, and that can 00:15:53.440 --> 00:15:56.299 turn a small downturn into a major crisis. But 00:15:56.299 --> 00:15:59.240 couldn't you argue that having debt forces managers 00:15:59.240 --> 00:16:01.840 to be more disciplined? That's a counterargument 00:16:01.840 --> 00:16:04.580 you hear, sure. The debt holders provide a layer 00:16:04.580 --> 00:16:07.480 of oversight. But the response is that the tax 00:16:07.480 --> 00:16:09.779 code should be neutral. It shouldn't be picking 00:16:09.779 --> 00:16:12.679 winners and losers between debt and equity. The 00:16:12.679 --> 00:16:14.899 market should decide the right capital structure, 00:16:15.159 --> 00:16:18.399 not the tax code. OK, what about the second distortion, 00:16:18.740 --> 00:16:22.000 the one about what executives do with all that 00:16:22.000 --> 00:16:24.919 cash? This is the wasteful retention argument. 00:16:25.159 --> 00:16:27.700 Because paying a dividend triggers that second 00:16:27.700 --> 00:16:30.419 tax, there's a big disincentive to do it. So 00:16:30.419 --> 00:16:33.220 what happens? The cash piles up inside the company. 00:16:33.360 --> 00:16:36.320 Creating a huge war chest for the CEO. Exactly. 00:16:36.539 --> 00:16:39.179 And that creates what economists call an agency 00:16:39.179 --> 00:16:42.269 problem. The managers might be tempted to use 00:16:42.269 --> 00:16:45.289 that cash on projects that boost their own egos. 00:16:45.720 --> 00:16:48.440 like flashy mergers instead of projects that 00:16:48.440 --> 00:16:50.120 are actually profitable for the shareholders. 00:16:50.379 --> 00:16:52.559 So capital gets tracked inside a company earning 00:16:52.559 --> 00:16:55.240 a 5 % return when the shareholders could have 00:16:55.240 --> 00:16:57.159 taken it as a dividend and invested it somewhere 00:16:57.159 --> 00:16:59.740 else for a 10 % return. That's the misallocation 00:16:59.740 --> 00:17:02.059 argument in a nutshell. It starves the most productive 00:17:02.059 --> 00:17:04.240 parts of the economy and bloats the less efficient 00:17:04.240 --> 00:17:06.440 ones. This gets even more complicated when you 00:17:06.440 --> 00:17:08.180 try to figure out what a shareholder's actual 00:17:08.180 --> 00:17:11.119 income is. This is where hidden gains come in. 00:17:11.440 --> 00:17:13.559 This gets a little technical, but it's so important. 00:17:13.720 --> 00:17:15.920 Your true income as a shareholder isn't just 00:17:15.920 --> 00:17:18.519 the dividend check you get. It's the total change 00:17:18.519 --> 00:17:21.579 in the value of your shares. That includes things 00:17:21.579 --> 00:17:24.420 like a company getting a new patent or cornering 00:17:24.420 --> 00:17:26.920 a new market. Those things increase the stock's 00:17:26.920 --> 00:17:29.500 value, but they're not taxed at the corporate 00:17:29.500 --> 00:17:32.480 level right away. So when the dividend finally 00:17:32.480 --> 00:17:35.609 gets paid. What are you actually being taxed 00:17:35.609 --> 00:17:37.670 on? That's the tricky part. When a company pays 00:17:37.670 --> 00:17:41.069 a $1 dividend, you get a dollar in cash. But 00:17:41.069 --> 00:17:43.589 the value of your stock drops by about a dollar. 00:17:43.750 --> 00:17:45.769 Your net worth hasn't changed at that moment. 00:17:45.950 --> 00:17:48.849 The dividend tax is actually a tax on the past 00:17:48.849 --> 00:17:52.049 growth and past earnings that are now being formally 00:17:52.049 --> 00:17:55.250 recognized. I see. And that past growth is a 00:17:55.250 --> 00:17:58.119 mix of things. Some of it was from those untaxed 00:17:58.119 --> 00:18:00.200 hidden gains, but some of it was from profits 00:18:00.200 --> 00:18:02.500 that were already hit by the corporate tax. So 00:18:02.500 --> 00:18:05.279 it's a messy delayed tax that absolutely includes 00:18:05.279 --> 00:18:07.559 a double hit on some of that money. And it's 00:18:07.559 --> 00:18:10.619 that mismatch that drives all this tax planning 00:18:10.619 --> 00:18:14.099 and strange economic behavior. Which is why our 00:18:14.099 --> 00:18:16.960 sources say that a broadly accepted solution 00:18:16.960 --> 00:18:21.039 to all these distortions, well... It's yet to 00:18:21.039 --> 00:18:23.299 be found. The difficulty of finding any certainty 00:18:23.299 --> 00:18:25.839 here is perfectly summed up by that story about 00:18:25.839 --> 00:18:28.519 the French study. Oh, yeah. The 2022 study in 00:18:28.519 --> 00:18:31.059 the American Economic Review. It was a huge deal 00:18:31.059 --> 00:18:32.980 for a moment. It looked at what happened when 00:18:32.980 --> 00:18:35.609 France jacked up its dividend tax rates. And 00:18:35.609 --> 00:18:37.950 it found the opposite of what you'd expect. It 00:18:37.950 --> 00:18:39.950 found that, yes, companies paid fewer dividends, 00:18:40.049 --> 00:18:42.170 but they ended up reinvesting more of that money 00:18:42.170 --> 00:18:44.390 back into their own businesses. Yeah. The initial 00:18:44.390 --> 00:18:46.710 conclusion was, hey, maybe this tax doesn't cause 00:18:46.710 --> 00:18:49.069 misallocation at all. Maybe it even reduces it. 00:18:49.170 --> 00:18:51.529 But then the story takes a turn. A big turn. 00:18:51.690 --> 00:18:54.190 The study was retracted. Other researchers found, 00:18:54.269 --> 00:18:56.930 quote, inconsistencies in the data. It was a 00:18:56.930 --> 00:19:00.490 huge controversy. Wow. To have a study in a top 00:19:00.490 --> 00:19:03.390 journal retracted on a topic this big. It's a 00:19:03.390 --> 00:19:06.569 massive cautionary tale. It just shows how hard 00:19:06.569 --> 00:19:09.069 it is to get clean data and prove cause and effect 00:19:09.069 --> 00:19:11.670 in this area. Even though the original authors 00:19:11.670 --> 00:19:13.869 argued the issues didn't change the main results, 00:19:14.170 --> 00:19:16.349 the retraction itself proves that policymakers 00:19:16.349 --> 00:19:19.329 are often working with very shaky evidence. So 00:19:19.329 --> 00:19:21.829 given all this controversy, what are the big 00:19:21.829 --> 00:19:24.529 ideas for fixing this mess? They usually fall 00:19:24.529 --> 00:19:27.210 into two buckets. You can either just lower the 00:19:27.210 --> 00:19:29.630 rates on dividends, on capital gains, on corporate 00:19:29.630 --> 00:19:32.960 profits to reduce the friction. Or you can go 00:19:32.960 --> 00:19:35.460 for a more structural change to actually integrate 00:19:35.460 --> 00:19:38.259 the systems. Like what? Well, you could let companies 00:19:38.259 --> 00:19:40.259 deduct their dividend payments as an expense, 00:19:40.400 --> 00:19:42.980 just like they do with interest. Or a cleaner 00:19:42.980 --> 00:19:45.019 way might be to just make any dividend paid out 00:19:45.019 --> 00:19:47.599 of already taxed corporate profits completely 00:19:47.599 --> 00:19:49.799 tax -free to the shareholder. The goal is the 00:19:49.799 --> 00:19:52.539 same. Make sure that stream of profit only gets 00:19:52.539 --> 00:19:55.700 taxed once. Right. And that really gets us into 00:19:55.700 --> 00:19:57.720 how different countries have tried to solve this. 00:19:57.880 --> 00:20:00.240 So let's move to Section 3 and look at the global 00:20:00.240 --> 00:20:03.619 picture because the variety is incredible. The 00:20:03.619 --> 00:20:06.900 global data is fascinating, especially when you 00:20:06.900 --> 00:20:09.740 compare a country's tax rate on capital gains 00:20:09.740 --> 00:20:13.220 to its rate on dividends. That difference, that 00:20:13.220 --> 00:20:15.740 spread, tells you everything about its policy 00:20:15.740 --> 00:20:18.359 priorities. Because, as we said, that spread 00:20:18.359 --> 00:20:20.720 drives the choice between buybacks and dividends. 00:20:20.980 --> 00:20:22.940 Exactly. So let's look at the countries with 00:20:22.940 --> 00:20:25.329 a big positive spread. where the dividend tax 00:20:25.329 --> 00:20:28.049 is way higher than the capital gains tax. This 00:20:28.049 --> 00:20:30.650 is a giant flashing sign that says... don't pay 00:20:30.650 --> 00:20:32.609 dividends. And who's at the top of that list? 00:20:32.869 --> 00:20:34.869 South Korea is the most extreme. They have a 00:20:34.869 --> 00:20:38.210 massive 44 percentage point spread, a huge incentive 00:20:38.210 --> 00:20:41.170 for buybacks. Belgium is next at 30 percent, 00:20:41.230 --> 00:20:43.170 then Slovenia. These countries are effectively 00:20:43.170 --> 00:20:46.089 forcing companies to retain cash or use buybacks. 00:20:46.250 --> 00:20:48.170 Then you have the neutral countries, the ones 00:20:48.170 --> 00:20:49.990 that try not to pick a side. Right. The countries 00:20:49.990 --> 00:20:52.829 with a zero spread. And this list includes the 00:20:52.829 --> 00:20:54.970 U .S., which makes sense given the changes in 00:20:54.970 --> 00:20:58.059 2003. Who else is in that club? Denmark, France, 00:20:58.319 --> 00:21:02.519 Germany, Japan, Spain, a lot of the big OECD 00:21:02.519 --> 00:21:05.299 economies. For the U .S., it means the top rate 00:21:05.299 --> 00:21:07.700 on qualified dividends is the same as the top 00:21:07.700 --> 00:21:10.480 rate on long term capital gains. The policy is 00:21:10.480 --> 00:21:12.900 officially neutral on how a company should return 00:21:12.900 --> 00:21:15.279 cash to shareholders. And then there are the 00:21:15.279 --> 00:21:17.819 weird ones, the countries with a negative spread, 00:21:18.000 --> 00:21:20.400 where it's actually more tax efficient to receive 00:21:20.400 --> 00:21:23.420 a dividend than a capital gain. This is much 00:21:23.420 --> 00:21:26.240 rarer, but you see it. Estonia and Latvia have 00:21:26.240 --> 00:21:29.279 a big negative spread of 20%. Greece is at negative 00:21:29.279 --> 00:21:32.019 10. It's an unusual choice, maybe designed to 00:21:32.019 --> 00:21:33.720 encourage companies to pay out cash quickly. 00:21:33.940 --> 00:21:36.599 Beyond just rates, some countries have entirely 00:21:36.599 --> 00:21:38.920 different systems. Let's talk about the imputation 00:21:38.920 --> 00:21:41.420 system in Australia. How does that work? The 00:21:41.420 --> 00:21:43.519 imputation system is, I think, a really elegant 00:21:43.519 --> 00:21:46.099 solution to the double tax problem. It directly 00:21:46.099 --> 00:21:48.099 connects the corporate tax to the shareholder's 00:21:48.099 --> 00:21:50.059 tax. So let's use an example. A company earns 00:21:50.059 --> 00:21:53.259 $100. The corporate tax rate is 30%. The company 00:21:53.259 --> 00:21:56.339 pays $30 in tax. Right, so it has $70 left to 00:21:56.339 --> 00:21:58.779 distribute as a dividend. Under an imputation 00:21:58.779 --> 00:22:01.859 system, when it pays you that $70 dividend, it 00:22:01.859 --> 00:22:04.000 also gives you a certificate, a franking credit, 00:22:04.220 --> 00:22:07.519 for the $30 in tax it already paid. Okay. So 00:22:07.519 --> 00:22:10.200 you, the shareholder, declare the full $100 of 00:22:10.200 --> 00:22:13.259 pre -tax profit as your income. Then you calculate 00:22:13.259 --> 00:22:15.740 your personal tax on that $100. Let's say your 00:22:15.740 --> 00:22:18.859 personal tax rate is 47%. That means you owe 00:22:18.859 --> 00:22:23.119 $47 in tax. But you have the $30 credit. Exactly. 00:22:23.140 --> 00:22:25.279 So you apply that credit and you only have to 00:22:25.279 --> 00:22:28.519 pay the remaining $70. The beauty is the total 00:22:28.519 --> 00:22:31.559 tax paid on that $100 of profit, the $30 by the 00:22:31.559 --> 00:22:35.960 company and the $17 by you adds up to $47, which 00:22:35.960 --> 00:22:38.869 is exactly your personal marginal rate. the corporate 00:22:38.869 --> 00:22:40.829 tax just becomes a prepayment. That's a really 00:22:40.829 --> 00:22:43.430 clean way to solve it. It ensures the total tax 00:22:43.430 --> 00:22:45.890 burden matches the individual's ability to pay. 00:22:46.069 --> 00:22:48.049 It's a very effective integration system. Canada 00:22:48.049 --> 00:22:50.130 does something similar but different with its 00:22:50.130 --> 00:22:52.890 dividend tax credit. Canada also aims for integration, 00:22:53.190 --> 00:22:56.690 but uses a gross -up mechanism. A Canadian shareholder 00:22:56.690 --> 00:22:58.309 gets a dividend, they have to gross it out by 00:22:58.309 --> 00:23:00.390 a certain percentage, and then they get a credit 00:23:00.390 --> 00:23:02.730 to offset the tax. It's notoriously complicated 00:23:02.730 --> 00:23:05.009 because of all the provincial rules, but the 00:23:05.009 --> 00:23:07.029 goal is the same. Give the investor credit for 00:23:07.029 --> 00:23:09.309 the tax the company already paid. And they made 00:23:09.309 --> 00:23:13.140 a change in 2006 to distinguish between... Eligible 00:23:13.140 --> 00:23:16.380 and ineligible dividends. What was that about? 00:23:16.660 --> 00:23:19.920 That was a way to fine tune the system. Eligible 00:23:19.920 --> 00:23:22.500 dividends come from profits that were taxed at 00:23:22.500 --> 00:23:26.220 the high general corporate rate. Ineligible dividends 00:23:26.220 --> 00:23:28.680 come from profits taxed at the lower small business 00:23:28.680 --> 00:23:31.759 rate. The tax credit is bigger for eligible dividends 00:23:31.759 --> 00:23:34.339 to make sure the total tax paid corporate plus 00:23:34.339 --> 00:23:36.920 personal is roughly the same in both cases. OK, 00:23:37.000 --> 00:23:39.700 let's go Asia. India is just a wild case study 00:23:39.700 --> 00:23:42.380 in policy whiplash. It's an absolute roller coaster. 00:23:42.500 --> 00:23:45.500 Before 1997, it was a classic system. The investor 00:23:45.500 --> 00:23:48.480 paid the tax. Then in 97, they switched to a 00:23:48.480 --> 00:23:50.960 dividend distribution tax, the DDT. So the company 00:23:50.960 --> 00:23:53.779 paid the tax instead. Right. Which made the dividend 00:23:53.779 --> 00:23:56.630 tax free for the investor. But that only lasted 00:23:56.630 --> 00:23:59.730 five years. In 2002, they scrapped it and went 00:23:59.730 --> 00:24:01.869 back to the old system. And how did the market 00:24:01.869 --> 00:24:05.150 react to that? It hated it. The sources say it 00:24:05.150 --> 00:24:07.589 caused negative sentiments and stock prices fell. 00:24:07.990 --> 00:24:10.029 So what did the government do? They switched 00:24:10.029 --> 00:24:13.450 back. They switched back. In 2003, the DDT was 00:24:13.450 --> 00:24:15.970 back in. But they kept tweaking the rate upwards 00:24:15.970 --> 00:24:20.109 for the next 17 years. Then in 2020, they scrapped 00:24:20.109 --> 00:24:22.150 it again. They scrapped it again. They went back 00:24:22.150 --> 00:24:24.470 to taxing the investor. The main reason this 00:24:24.470 --> 00:24:26.930 time was to attract foreign investment. Global 00:24:26.930 --> 00:24:29.390 investors find it much easier to claim tax credits 00:24:29.390 --> 00:24:31.509 back home when they're the ones paying the tax 00:24:31.509 --> 00:24:33.849 in India. It just shows how policy gets pulled 00:24:33.849 --> 00:24:35.849 between domestic needs and global competition. 00:24:36.130 --> 00:24:38.470 It really does. OK, let's round out the world 00:24:38.470 --> 00:24:40.369 tour with a few examples from Europe and, of 00:24:40.369 --> 00:24:43.329 course, the places with no tax at all. In Germany, 00:24:43.390 --> 00:24:45.710 they have a flat withholding tax, the Erbgeltungsteuer, 00:24:45.789 --> 00:24:49.470 of 25%. Then they add a 5 .5 % solidarity tax 00:24:49.470 --> 00:24:51.710 on top of that. So the total comes out to about 00:24:51.710 --> 00:24:55.410 26 .4%. It's a simple flat rate on passive income. 00:24:55.609 --> 00:24:57.589 The UK, on the other hand, is very progressive. 00:24:57.990 --> 00:25:00.859 Very. The rate is tied to your income band. It 00:25:00.859 --> 00:25:04.059 starts at 8 .75 % for basic rate taxpayers and 00:25:04.059 --> 00:25:06.960 goes all the way up to 39 .35 % for the highest 00:25:06.960 --> 00:25:09.440 earners. And they've also been slashing the tax 00:25:09.440 --> 00:25:11.480 -free allowance for dividends, so it bites almost 00:25:11.480 --> 00:25:14.400 everyone now. And finally, the outliers. The 00:25:14.400 --> 00:25:16.940 countries that decided the easiest solution is 00:25:16.940 --> 00:25:19.420 just to have no dividend tax at all. You've got 00:25:19.420 --> 00:25:21.680 some major economies on that list. Brazil is 00:25:21.680 --> 00:25:24.599 a big one. Hong Kong, a huge financial center, 00:25:24.680 --> 00:25:28.160 has no dividend tax. Iran, Singapore. For a place 00:25:28.160 --> 00:25:30.099 like Singapore, that has to be a deliberate strategy. 00:25:30.359 --> 00:25:32.539 Oh, it's 100 % a strategic decision to be competitive. 00:25:33.039 --> 00:25:35.339 By having no dividend tax, you make your country 00:25:35.339 --> 00:25:37.319 an incredibly attractive place to set up a corporate 00:25:37.319 --> 00:25:39.700 headquarters or manage capital. It's a policy 00:25:39.700 --> 00:25:42.240 that prioritizes attracting global capital flows 00:25:42.240 --> 00:25:44.839 over collecting that specific stream of domestic 00:25:44.839 --> 00:25:48.150 revenue. The range is just staggering from zero 00:25:48.150 --> 00:25:50.950 in Singapore to complex integration in Australia 00:25:50.950 --> 00:25:53.910 to what is effectively aggressive double taxation 00:25:53.910 --> 00:25:56.869 in South Korea. It proves this is a strategic 00:25:56.869 --> 00:25:59.410 lever that governments pull. It absolutely is. 00:25:59.470 --> 00:26:01.549 The policy choice a country makes really reveals 00:26:01.549 --> 00:26:03.930 its core economic goals. So let's try to wrap 00:26:03.930 --> 00:26:06.470 this all up. We started with what seemed like 00:26:06.470 --> 00:26:09.849 a simple tax, but it opens up this huge unresolved 00:26:09.849 --> 00:26:13.569 conflict. The dividend tax is both a legal necessity 00:26:13.569 --> 00:26:18.029 to make corporations pay their dues and an economic 00:26:18.029 --> 00:26:20.349 distortion that punishes investment. And that 00:26:20.349 --> 00:26:22.809 tension is still there. All these different global 00:26:22.809 --> 00:26:25.730 policies are just different attempts to manage 00:26:25.730 --> 00:26:27.980 that friction. There's no one right answer. And 00:26:27.980 --> 00:26:29.819 the American story shows that policy is just 00:26:29.819 --> 00:26:32.539 constantly in flux, leading to the incredibly 00:26:32.539 --> 00:26:35.059 complex system we have today. And we saw with 00:26:35.059 --> 00:26:37.460 the French study that even the data we use to 00:26:37.460 --> 00:26:40.180 make these huge decisions can be unstable. We're 00:26:40.180 --> 00:26:42.660 often navigating by theory as much as by hard 00:26:42.660 --> 00:26:44.619 evidence. Which leaves us with a final thought 00:26:44.619 --> 00:26:46.559 for you, our listener. We've laid out the two 00:26:46.559 --> 00:26:49.059 camps, the people who say the tax is destructive 00:26:49.059 --> 00:26:51.460 and should be eliminated, and the people who 00:26:51.460 --> 00:26:53.380 say it's a necessary price for the privilege 00:26:53.380 --> 00:26:56.059 of limited liability. And we've seen that the 00:26:56.059 --> 00:26:57.920 global trend seems to be moving towards either 00:26:57.920 --> 00:27:00.900 neutrality or integration to try and reduce those 00:27:00.900 --> 00:27:04.200 economic distortions. So with that in mind, here's 00:27:04.200 --> 00:27:06.609 the question for you. If you were in charge, 00:27:06.849 --> 00:27:09.710 how would you solve this? Would you prioritize 00:27:09.710 --> 00:27:12.589 economic efficiency and lower the tax on capital, 00:27:12.750 --> 00:27:14.490 even if it looks like a giveaway to the wealthy? 00:27:14.849 --> 00:27:18.069 Or would you maintain a strong second tax to 00:27:18.069 --> 00:27:20.569 ensure that the huge benefit of limited liability 00:27:20.569 --> 00:27:23.390 always has a price tag attached? Which solution 00:27:23.390 --> 00:27:25.730 do you think best balances the legal fiction 00:27:25.730 --> 00:27:28.190 and the economic reality of a corporation today? 00:27:28.450 --> 00:27:30.170 It's probably the biggest unanswered question 00:27:30.170 --> 00:27:32.109 in corporate finance. And that's all the time 00:27:32.109 --> 00:27:33.990 we have for this deep dive. Thanks for joining 00:27:33.990 --> 00:27:35.089 us. We'll see you on the next one.