jbennet, I disagree with you. Using taxation to "direct" the market to what is "conceived" to be beneficial (who decides, how do they know?), interferes with free market forces. By the way, super Capital gains is already on the book and if you hold the stock of a small company (less than $50 MM in assets) for more than 5 years, your are taxed at half the then prevailing capital gain rates (right now that would be a tax bite of 10% of profits). I think that Law, enacted by Clinton, was an error, and a partial reason for the proliferation of funding for doubtful entities in the dot.com era. Unfortunately the patch work of taxation legislation has left many distortions in the market place. For instance, interest paid by corporations on debt, is tax deductible, while dividends are not. Guess what, corporations maximize their debt, since interest is deductible (sometimes to excess, getting the company into trouble). On the other hand, since dividends are also taxed to the receiver of said dividends, companies have engaged in borrowing to buy back their own shares (many times at a premium to book value, not very wise). Why are they doing this? It is a way to give stock holders a dividend which is not taxed (MRK as bought some $22 B of its own stock over the last five to 10 years, that is a hidden dividend of almost $7/share over that period). That is a payout of 66% or so of all their cumulative earnings, of course, in the process they had to borrow some $10 B of that. Recently they announced their new buy back program of $10 B, but they have only $4.5 B in cash, so they'll have to borrow some more to do these buy backs (hopefully not, since they are planning the sale of Medco which should bring half of that money in). If dividends to stockholders was not taxable, or was deductible to the companies like interest is, (my preference), then the balance sheets of many companies would have a larger proportion of equity and less debt.
Zeev
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