Thursday, February 06, 2003

Note: I originally posted this at another blog by accident.

"White House Aides Push for 50% Cut in Dividend Taxes" (front page, Dec. 25) says tax analysts believe that bringing this tax in line with the lower capital gains taxes would eliminate an imbalance that favors faster-growing companies like Microsoft that do not pay dividends. It is those companies that we want to reward, as a way to increase job growth and give them more access to capital, which, in turn, creates even more jobs.
Passaic, N.J., Dec. 25, 2002

Let us be fair: Mr. Fumento is quoting from the original article: "Tax analysts said that would eliminate one imbalance in the current tax system that favors fast-growing companies like Microsoft that pay no dividends but attract investors with the prospect of big increases in their stock prices."), so it isn't really he who appears to be telling as many lies as there are words; it's Times reporter Edmund L. Andrews and the editors.

How many false statements are there? Well, for starters:

(1) MSFT is "fast-growing"

This will come as a major surprise to the company's investors, who see growth only through leveraging monopoly power and spending our money to force everyone else out of the market by losing a billion here and a billion there, such as with the X-Box.

(2) MSFT attracts investors "with the prospect of increases in their stock price"

This will also amaze MSFT investors, several of whom purchased the company at upwards of $90.00 a share. Even those of us who came in relatively recently (I bought my first shares in the company at approximately $66.60) will be amazed that there is a prospect of an increae in the stock price.

Additionally, one might fairly ask what type of investor is attracted to the prospect of a decrease in that stock's price.

(3) the attraction of investors to companies "with the prospect of increases in their stock prices" is an imbalance, and this, er, favoritism needs to be corrected

Let's see: You have a choice between a stock that pays a 2% dividend and may go up and a stock that pays no dividend and may go up. Doesn't the choice ultimately depend on whether you expect the stock to appreciate more? And when a company (say, MSFT, just to be consistent) continually throws its good money after bad investments, do you really expect its "prospect of increases" (I know no one who consistently buys stocks expecting them to decline) to outweigh those of the dividend-paying company?

Bad enough that the Times couldn't figure this out; guess they didn't have access to any chaart of MSFT stock, such as the one freely available from Yahoo! (for instance, the two-year graph ). Or maybe that the options for next January (available from appear to imply a fair price in one yar of around 54.70, which would be maybe 3% on the current stock price.

6 February Note: Current numbers project similarly on a percentage basis; it is simply that MSFT has dropped to 47.29

And then we have Mr. Fumento, who has been convinced by the Times that MSFT is a role model.

(4) MSFT needs more access to CAPITAL (part 1)

MSFT cannot access the capital markets? This will come as a great surprise to them as well as their stockholders (guess what? Stock is capital). Do they have any debt? With their excess cash on hand--much of which owns stock in other companies--it's difficult to believe they would have trouble finding a lender.

(5) MSFT NEEDS more access to capital (part 2)

MSFT is more cash-rich than Shrub's top ten campaign donors. And paying dividends REDUCES capital on-hand. So firms that actually NEED access to capital won't pay dividends, or at least won't increase them.

(6) MSFT is fast-growing

MSFT has a hiring freeze. Giving them more money will not change that. It will just make that money unavailable to some company that needs it.


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