Excludable Distribution Account

Jan 31, 2003 | upchuck

[upchuck]

Back on Jan 10, 2003, there was an article from Investors Business Daily posted here on FR^ that was about excludable distribution accounts. I won't repost the article, you can follow the link for that. But here are the first few sentences:

Stimulus: All the talk about President Bush's $674 billion stimulus plan has been focused on dividends. But slipped in among its provisions is a possible bombshell that could be very bullish for stocks.

It's called an "excludable distribution account." If that doesn't sound sexy, it should. At least if you own stock. These accounts potentially will boost returns for all shareholders - not just those who own shares that pay dividends.

The Bush administration - wisely, we think - wants to avoid giving stocks that pay dividends an advantage over other stocks.

... Since small companies don't pay dividends, but instead retain their earnings to invest further in growth, why not give a tax break for retained earnings?

When I originally read this I thought to myself, "Wow, what a concept! Since the vast majority of companies that offer stock do not pay a dividend, this idea is perfect."

But, I've heard no more about this. The original article is archieved on IBD's website but I can't read it since I don't subscribe.

A Google search doesn't offer much. Here's a Raging Bull chatboard^ that mentions it.

Since the EDA promises to get much more of a tax break than not taxing dividends, I was very surprised when President Bush did not mention this in the SOTU address Tues night. And even more suprised the RATS aren't screaming their heads off about this.

So, how 'bout it FReepers? Anybody know why EDA has dropped out of sight?

[upchuck]

So, how 'bout it FReepers? Anybody know why EDA has dropped out of sight?

[Moonman62]

Nice post. I didn' know about this. My guess is that Glen Hubbard is sneaking some good economic legislation past the president. I would think that he's selling this to the president as demand management, a way to hold down the markets, and a way to crack down on corporate governance. He would never mention to the president its supply-side qualities.

You might have more luck by doing a search on "retained earnings" and Hubbard, or "tax cuts" and Hubbard.

[upchuck]

Thanks for the response. Your post makes my point. You didn't know about this. Apparently, this is a well kept secret or something. I can find nothing about this in the lamestream media. I felt confident, after reading the original post, that the NYT, et. al. would be screaming bloody murder about this. Seems inconceivable they don't know about it.

[Lee_Atwater]

Apparently, this is a well kept secret or something.

This was picked up by only a few people. I became aware of the "excludable distribution account" while reading a research note in early January.

It can be called a "deemed dividend" as well. A "deemed dividend" being a company's taxed profits that are not paid out as dividends.

So when you divest a security, you can exclude all the deemed dividends from the profits on which you would have to pay a capital gains tax.

It is effectively a capital gains tax reduction.

I can find nothing about this in the lamestream media...Seems inconceivable they don't know about it.

It's not inconceivable in my mind, given the state of financial journalism. It's probably too complex for them.