Purdue News

January 7, 2003 Purdue economist can talk about Bush tax cut Eliminating taxes on dividends, the centerpiece of President George Bush's fiscal stimulus package, is good long-term strategy but may be ill-timed, says Gerald J. Lynch, a professor of economics and associate dean at Purdue University's Krannert School of Management. "The United States is one of only a small number of nations that taxes dividends twice," Lynch says. "Because corporations already pay taxes, the tax on interest is a double tax and is a negative factor in the long-term growth of the economy. That needs to be corrected." What Lynch questions is the proposal's timing. If the United States becomes embroiled in an expensive war with Iraq, money can come from only two sources – increased taxes or increased borrowing, which increases the government deficit. So while nearly everyone agrees the economy needs a stimulus, Lynch says ending taxation on dividends in the face of war may not provide an economic impetus in the short term and could lead to mounting deficits. "I'm a conservative economist who is skeptical about the strategy," he says. The president is scheduled to announce his stimulus strategy today (Tuesday, 1/7) during a speech in Chicago. CONTACT: Lynch, (765) 494-4388, lynch@mgmt.purdue.edu.