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 Posted: Sat 20 Sep 2008 15:34 Post subject: |
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| sagascend wrote: | | given that countries can also have one set of tax laws for citizens/domestic corporations and another for foreign investors, doesn't the after-tax value of the stock depend on who bought it as well as the prevailing capital gains tax and dividend laws? |
Yes. Some countries tax residents, no matter their source of income. Others tax domestic-source income, whether made by residents or foreigners. And some, like the U.S., do both.
| sagascend wrote: | | Do differences in dividend taxes in the apples-to-apples comparison mean that a Japanese investor in Toyota keeps more money after the sale of stock than a U.S. investor in Toyota if Japan's capital gains tax and dividend tax are lower? |
Income tax applies only to dividends (income). Capital gains tax applies only to change in asset value (liquidation). Many countries do not tax capital gains at all. I thought that we were talking only about income tax.
Forgetting capital gains, if a company makes $100 per shareholder in Japan, the $100 is taxed once. Obviously, this tax expense is passed on to the shareholder. So if the tax rate is 10 percent, the shareholder then receives only $90 (tax-free because the taxes have already been paid). The same company in the U.S. would also pay the 10 percent tax and distribute the $90 to the shareholder. But the U.S. shareholder then pays another 10 percent income tax on it, resulting in a net of $81.
| sagascend wrote: | | If so, what impact does this have on how many jobs are created in Japan vs. U.S.? Companies can raise capital and grow through equity as well as debt financing. A 20% dividend tax is also in line with dividend taxes in growing economies like China and India. |
I do not know the impact on job creation or the economy in general. That is why I said that I could not tell if increasing tax on dividends was good or bad. I think the end result is that American firms must lean more heavily on debt financing vis-a-vis equity financing, than do companies outside the U.S. I think that one way or the other, they get financing (and create the jobs), so I would guess that the immediate impact is negligible. The longer term impact is that relatively few ordinary U.S. middle-class consumers participate in corporation ownership. In other countries, middle class folks put money into stocks [equity financing] as routinely as Americans put money into savings (or money market) accounts [debt financing]. |
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