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Originally posted by taxwonk
1. Relative interest rates don't matter, corporate issuers as a whole will pay less in dividends than they will for interest because interest generates a tax benefit. This is what I do for a living, so I'm fairly comfortable with the concept. This is also why there are markets for things like DECS and MIPS.
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I'm not following you. You said above that debt is cheaper. This seems to suggest the opposite result (i.e, the argument I initially made).
[quote]2. Are you forgetting, overlooking, or just not pausing to think about your statement vis. junk bonds? If they're issuing junk, it's because they are bleeding capital and couldn't pay a dividend to begin with.[quote]
Untrue, but not worth discussing because it is irrevelant. Strike junk and just consider the bond market.
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Actually, for relevance to this issue, they are debtors, not investors or creditors. You were discussing the attractiveness of issuing equity v. debt, so the relevant position of the corporation in the discussion is as a consumer of capital, not a supplier.
If you want to consider the corporation as an investor, then your point is lacking any logic at all. Corporate shareholdes have enjoyed a dividends received deduction for decades, ranging from 70% to 100%, depending on the size of their holding in the corporate shareholder. Thus, they have no place at all in the discussion of the Bush dividend tax break, since it doesn't apply to them.
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You suggested above that it benefits companies, not investors. My point is that they are really one in the same, i.e., what is good for the company is essentially the same as what is good for its shareholders. You can't really disagree with this (well you could, but you would be wrong).
