Many US politicians trumpet the headline of raising the dividend tax rate only on those earning more than $1m annually.  That claim has a populist ring, but the rhetoric disguises the risks of hurting ordinary Americans, encouraging short-termism and expanding corporate powers.

Such a tax increase will result in corporations cutting dividends. (Note that the opposite is also true — when dividend taxes fall, corporations raise dividends.) Whether to cut dividends is ultimately a decision for each company. Corporate boards set dividends by estimating whether it is the corporation or its shareholders that can deploy each dollar of earnings more effectively. If shareholders pay higher taxes on dividends, each such dollar is of less use to them and boards will instead retain more of the earnings to deploy another way.