In January, President George W. Bush proposed eliminating the double taxation of stock dividends. Taxing dividends twice—at both the corporate and the individual level—has long differentiated the US tax system from those in many other countries, including Australia, France, and Germany. As the proposal moves through Congress, the debate is likely to focus on how much the change would stimulate the economy, if at all, and which sections of the US population would probably benefit most.

We won’t comment on those broader macroeconomic and political issues, but we have watched with interest as business commentators studied the proposal from corporate perspectives. Some have turned to finance theory to analyze whether the proposal could raise the share prices of companies that pay dividends and change the policies of those that don’t. Others suggest, even more sweepingly, that ending the double taxation of dividends might better align corporate strategies with economic fundamentals by improving the use of capital and restoring a greater degree of soundness to the formulation of strategy after a period when debt-financed growth and acquisitions seemed to claim pride of place in many executives’ strategic thinking.

We doubt all this. The proposed tax cut, when viewed with an...