Sunday, January 01, 2006

Don't Take My Word For It

One of the most amazing aspects of the Internet is the ability to access massive amounts of information rapidly and cheaply. Seen in this light, blogs represent an almost exponential increase in the number of "doors" available to gain access to information.

There is, of course, a related downside to this profusion of information. That is, with a great deal of "information" floating around, the "information" may simply be false. Thus, Wikipedia has recently had to grapple with anonymous postings that were factually incorrect and even defamatory.

Whenever possible, I attempt to provide links to cases or reports that I discuss. Thus, if I say that case of Smith v. Jones holds thus and such, I link to the opinion, making it easy for my readers to determine for themselves whether I got it right. Similarly, whenever possible, I try to link to academic and research reports that I discuss. Thus, it is bothersome to me that the reports of the Congressional Research Service are not routinely published on the web at one convenient location.

It is also troublesome that other web discussions, on blogs and other websites, often do not provide links to the source material that they discuss. A case in point is the report of the Center for Budget and Policy Priorities on the (non)effect of the Bush dividend tax cut noted in TaxProf. Paul Caron, editor of TaxProf, correctly linked to the CBPP report.

That report discusses a reseach report, How Did the 2003 Dividend Tax Cut Affect Stock Prices?, dated October 11, 2005, authored by Gene Amromin, Paul Harrison, and Steve Sharpe, who are on the staff of the Federal Reserve Board. There is no way, from the CBPP report, to immediately locate the Federal Reserve staff report to determine whether the CBPP got the story right.

I was able to locate a Federal Reserve report entitled How Did the 2003 Dividend Tax Cut Affect Stock Prices and Corporate Payout Policy? that seems to incorportate the report that the CBPP refers to, but adds to it a portion of another report. Thus, in addition to the authors noted by the CBPP, this report has an additional author, Nellie Liang. This report states that it is a "synthesis" of the report by Amromin, et al., and a report, Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut, by Jeffrey Brown, Nellie Liang, and Scott Weisbenner. It is unclear what, if any, of the conclusions reached in either report were excised from the synthesis.

The "Stock Price" portion of the report concludes that the dividend tax cuts did not achieve their stated policy goal, namely raising stock prices of publicly traded stocks. (An increase in stock prices reduces the costs that publicly traded corporations have to pay for investment capital.) However, the second part of the report (the part on "Corporate Payout Policy") reaches an additional problematic conclusion. Specifically:
[The evidence suggests] that the effect of the tax cut on dividend policy was strongest at firms where the executive's personal financial gains were most positively affected by the tax cut.
In other words, executives of publicly traded companies acted rationally to maximize their financial interests, not those of their shareholders. ("What's good for General Bullmoose is good for the USA!")

The point is not that I distrust Paul Caron or the CBPP. I don't. To the contrary, unlike the editorial pages of the WSJ, which mislead as a matter of course and policy, I have found both TaxProf and the CBPP are "honest brokers," reporting the news as it is. However, there is a more important policy here. Whenever possible, reports and blog postings should link back to the root sources being discussed to allow readers to draw their own conclusions.

In this case, TaxProf was discussing the CBPP report, so it had no obligation to link back to the Federal Reserve research paper. It would have been nice if it had, but that would have involved a significant amount of time doing a web search and the TaxProf posting was limited to reporting on the issuance of the CBPP report. On the other hand, the CBPP should have undertaken the task of linking to the Federal Reserve report which, after all, was the focus of its paper.

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