Untaxing-I (Introduction) ch 3: Why Not To Increase Interest Rates
In general, the market value of public companies goes up if the dividend yield rate (and the linked savings interest rate) goes down. Market values fall if the dividend yield rate (and savings rate) is higher.
Let’s say the savings interest rate increases from 0.77% to 1.0639% and the dividend yield increases from 2.62% to 3.62%. The interest created by a $1,000 savings deposit is now $10.64. The asset yielding the $1,000 dividend is now valued at $27,624.31 (= $1,000 ÷ 0.0362).
Adding just 1% to the dividend yield reduces the public company’s market value by 27.6%. The market value dropped from $38,168 to $27,624.
The economic value of a higher savings rate has increased at the expense of equity. An equity value of $27,624 still carries greater economic significance than the increase in annual interest from $7.70 to $10.64.
But the $10,544 loss of equity value is unacceptable, especially within the new context of the untaxing of America as presented in this white paper. If more equity value is produced instead of getting lost, then there is an increase in capital gains which (when taxed) produces more tax revenue for the US Treasury.
Table 2 shows a $3.16 trillion loss in Corporate Market Value when the Dividend Yield Rate goes up by 1%. This loss of market value is simply unacceptable because it eliminates an increase in capital gains, resulting in less tax revenue for the US Treasury.
Mathematical proof is presented in chapter four to show why it is prudent not to tax corporate profits. Why corporations should return more dividends to their shareholders will also be explained in later parts of this white paper. It becomes vital for experts in economic, corporate, academic and policy-making circles to understand the economic harm done by the direct tax on public company profits and individual wages and salaries.