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Current situation
Following the holiday slack on Russian markets we have postponed the full version of our regular report for one more week. For the time being, only updated World Events section is available. Full version of the joint biweekly report will be placed on our web-site on January, 21. Sorry for possible inconvenience
World Events
Encouraged by his party gaining control over Congress, President Bush moved quickly to put through his economic agenda. Enjoying supporting majority in legislative branch of the government, the administration moved with astonishing speed and force to enact yet more tax cuts to revitalize the economy. While most of the new plan's topics deal with individual taxation, its most ambitious plan is to eradicate the so-called "double taxation" of corporate profits. Under current law, investors who receive dividends pay taxes on this income at ordinary income-tax rates. If the new rule is adopted, dividends would be exempt from the individual income tax. Companies that pay cash dividends will be required to notify their shareholders how much of their dividends are exempt. Dividends will be tax-free as long as they are paid out of profits on which the company has already paid taxes. In other words, the company will not be allowed to borrow money and pay out a tax-free dividend, as this payment will not be maid out of taxed profits. The administration is convinced that elimination of dividends taxation will lead to an increase in corporate investment. According to this view, dividend taxes restrain investment because they make it more costly for companies to raise equity funding. In contrast, investors in tax-free securities will be willing to accept a lower yield on their investment. Echoing the recent debate over dividends payout by large technology firms, Oracle Corp. became one of the first technology companies to consider paying a regular dividend if taxes on such payouts were rescinded. Previously, two big technology forms, Microsoft and Cisco, both cash-rich, fought off shareholders' demands of payouts. It was easy enough to dissuade shareholders, as they are not strongly motivated to receive taxable distributions. Oracle has billion in cash and has never paid a dividend.
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