Unearned income

When President Dwight Eisenhower proposed taxing dividends at lower rates than wages, Rep. John W. McCormack (Dem., Mass) said this:

“The Republican tax bill is indefensible in that portion which gives great benefits to corporations and constitutes a bonanza to stockholders, the large ones in particular.  It is unjust and in my opinion morally wrong to make a person with earned income pay considerably more in taxes than persons with unearned income from dividends.”

Notice two things about McCormack’s remarks.  First, pay attention to the use of the term “morally wrong.”  Why should a person who has money to invest in stocks pay less taxes on his or her income than a person who receives an hourly wage for stocking the shelves at Wal-Mart?  A policy like that is immoral.  

Second, look at the term “unearned income.”   People who make money because they already have money, often inherited, don’t really earn their income.  They receive it.  I’ve always been irritated when Parade magazine publishes its yearly issue on what people “earn.”  If some CEO gets $10 million a year, that is received, not earned.  No one ever “earns” that much.

Up to 2003 dividend tax rates were the same as ordinary income tax rates.  In 2003 (George W. Bush was president, to refresh your memory), dividend tax rates were reduced to 15%.  That is an immoral tax policy.