Untaxing Dividends

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The economic stimulus package you plan to announce on Tuesday should be called an economic sustainability package.

Despite the lagging indicator of 6 percent unemployment, the economy is already getting back on its feet after a Big Shakeout from the phony accounting of the '90s and the bursting of the high-tech bubble. Investors are just waiting to see if companies have absorbed all the lessons and new regulations that came out of that rah-rah-crash era.

Your plan's centerpiece - reducing or even eliminating the tax that many investors now pay on profits shared by companies as dividends - would provide a needed long-term correction to corporate behavior and help sustain the recovery.

Instead of viewing the stock market like a casino for quick capital gains, more investors would have the tax incentive to demand bird-in-hand dividends from CEOs. And instead of just trying to boost their stock prices by such tricks as mergers, companies would need to boost productivity and hand over a greater portion of profits.

Higher dividend income for investors would sustain job growth better than another '90s-style stock boom. Dividends are based on real growth and allow investors to better distribute their money to the best-run companies.

Previous presidents, including Jimmy Carter, have recommended this tax change, mainly because of the unfairness in taxing both a company and its investors on the same profits. But the '90s showed that many companies need to pay out more in dividends. One sign: Dividend-paying stocks have outperformed nondividend stocks for the past three years.

Political posturing will try to prevent this needed reform. Mr. Bush didn't help by calling it a stimulus. Democrats forget how many middle-income Americans now invest outside their 401(k) plans.

But it's the jobless who really need companies that will better sustain growth the old-fashioned way: by giving a return on investments.

Tax reform on dividends = real investments = sustainable jobs.