The stunning Microsoft decision to return more than $75 billion in cash to shareholders over the next four years is a smashing endorsement of the importance of President Bush?s pro-growth tax cuts. It is also a tremendous boon to investors, who will recycle this windfall into thousands of businesses both large and small -- a process that will significantly increase new jobs and grow the economy.
The Redmond, Washington-based software maker intends to pay a special $3 dividend for every investor share, for a total of $32 billion. Additionally, Microsoft will double its annual dividend and buy as much as $30 billion of its own stock over the next four years. If this new policy raises the Microsoft share price -- as is likely -- then the total package could be worth over $100 billion to shareholders.
Ironically, Microsoft?s corporate decision, induced by supply-side tax cuts, will also provide a huge Keynesian injection of fiscal stimulus to the economy, one that will more than offset the temporary effects of higher energy costs on consumer purchasing power. Even better, this sea-change policy will ripple through corporate America, forcing public companies to take similar actions.
When President Bush launched his initiative to equalize the tax rate on capital gains and investor dividends at 15 percent, there was a derisive outcry. Mainstream thinkers claimed the plan would only benefit the rich and have no impact on economic growth or jobs. Now that the economy -- led by business investment -- is growing at the fastest pace in two decades, the liberal establishment may wish to rethink its position.
Basically, the Bush plan significantly reduces Uncle Sam?s tax bite on profits and investment capital, leaving more in private hands for channeling into job-creating businesses. Remember, both dividends and capital gains are taxed at the corporate level, the individual level, and as capital gains. While this triple taxation of capital was not eliminated, the tax penalty was substantially lowered. As the capital-gains levy was cut from 20 percent to 15 percent on the marginal dollar, the dividend rate was reduced at the top income level from 40 percent to 15 percent. Meanwhile, personal income-tax rates were reduced across the board.