There is a significant dividend tax political controversy. The corporation paid income taxes on the profit it earned (original tax). The owners of the business then take that profit out for their personal use in the form of a dividend and are taxed at personal income tax rates (second tax). In effect, they have paid the government twice.
The proponents of the dividend tax argue that the wealthy, by definition, own significantly more investments than the poor. Therefore, it would be possible for someone to earn billions of dollars in dividend income and not pay a dime in Federal taxes. This, they say, is inherently unfair. The gap between the rich and the poor would explode over night.
For more information, read The Investor's Guide to the Dividend Tax - What the Dividend Tax Is and the Dividend Tax Rates. You may also want to read Dividend Tax - The Political Debate: Understanding the Double Taxation Fuss.
