First, let me repeat that I am not claiming that taxation drives no behavior. I'm saying that the degree to which it drives behavior is frequently overstated.

>You're basically questioning the efficient market hypothesis...

No, I'm not. Your example is specious. If you posit an overly-simplistic scenario that allows Company X to easily save $5M, then of course they will do it. Anyone would agree that's just rational behavior. What I am saying, however, is that many (including you) opine that individuals/corporations will suddenly begin to engage in completely irrational or counter-productive behavior because, you know, taxes.

>There is mathematically no non-tax difference between issuing a dividend and using the same money to have a share buy-back...

Except that the net income that flows to me is greater as a shareholder. If corporations want to maximize shareholder value (and hence drive demand/stock price up), then paying dividends is certainly one means of doing that. If I can effectively earn that dividend while continuing to hold the underlying stock as it continues to appreciate in value, then when I finally cash out, I will have earned more while also enjoying the use of the money (dividends) along the way. This is irrespective of tax consequences. Many "rationally-acting" shareholders recognize the appeal of dividends. Perhaps this is why, for instance, dividends have contributed to at least 45% of the total return of stocks in the S&P 500 since 1926.

>That doesn't make any sense. If a shareholder wants cash then they can sell that portion of their shares and the tax event would be smaller than receiving a dividend...

Sure, it makes sense. For one, with dividends the shareholder still retains the underlying asset vs. by selling portions of his stock. This discussion is off-track though. You're correct that the tax treatment is the same but my initial point with dividends was to simply refute your assertion that companies might suddenly stop paying "dividends at all" because, taxes. Instead, I provided an example of rational, "healthy" behavior that might result from tax changes. This vs. the typical knee-jerk overstated response that "any taxes are evil and will cause otherwise rational people to suddenly and completely lose their minds".

>Then explain the multi-billion dollar cash hoards held by most large successful corporations

I don't get your point here in the context of this discussion. Companies frequently accrue cash when profitable and they haven't allocated it for re-investment, acquisitions, etc. Depending on the company and degree, this may or may not be desirable, as it may well-represent an under-utilization of resources. But, your initial implication was that companies will hold on to cash simply to avoid taxation, as if they'd do so even in light of investment or other opportunities.

This is the kind of thinking to which I am taking exception. It attributes to actors these completely irrational behaviors that are supposedly generated by the tax code.

>But they can make bad or less good investments than the real parties in interest

Sure, anything can happen. But, this is a huge leap on pure conjecture. The company is going to do what it thinks best, given the environment, period. There are a whole host of influencing factors. It's an unrealistic overstatement to say that they will suddenly become irrational because, taxes.

>I'm not sure why that should make the investors want to pay it any more.

That's a trite response. Obviously, people don't enjoy paying taxes. The point is that the other end of the argument overstates the "damage" caused to the investor psyche by taxation. And, that overstatement is an important part of assigning this outsized behavioral effect to taxes overall. It's as if there's now zero-benefit to investing or even that it's actually punitive to do so because, taxes.

>Not necessarily. You might just hold onto it until your kids inherit it...

Sure. But, your example implied that I'm ready to cash out but simply (and automatically) won't to avoid taxation. My point, again, is that's overstated. Will the tax event impact my calculus? Sure. But, it's far from automatic.

>It has not zero value. You can take a loan against it and then deduct the interest...

If you know of a way to do this as a personal investor, please share!

The bigger point though is that you're moving the goalposts. If you are holding the stock for other reasons (company control, etc.), then that's a different calculus. You're probably not interested in cashing out irrespective of the tax scenario. I was following the thread you'd started, that essentially assumed that people who are ready to cash out won't do so simply to avoid taxation.