The huge dividend announced by Microsoft this week, combined with a multi-year share repurchase program, appears to be a final admission that the money printing machine from Redmond has reached its ceiling in terms of growth. The company has not been able to identify opportunities to further increase shareholder value and has chosen to do what is best in a situation like this: return cash directly to the shareholders. That’s the simple business analysis, but it appears that the decision is also tax-driven:

"The prospect of Senator Kerry becoming president could be viewed by some companies as an incentive to pay out dividends this year," said Garay, who said he could not discuss Microsoft because it is a Deloitte audit client. "It would be even more of an incentive for closely held companies whose owners will be directly affected" by large dividend payments, he added, saying that there could be a flood of such dividends declared after a Kerry victory if there appeared to be a good chance the tax law would be changed.

As one of the largest shareholders Bill Gates is likely to reap 3 billion dollars from this arrangement and if the dividend tax rate were to be raised back to 35 percent for high-income taxpayers as Kerry might do, Gates would pay a tax of $1.05 billion, or $600 million more than under the current tax laws. Gates is planning to divert the proceeds of this "super-dividend" to his Bill & Melinda Gates Foundation, supporting the notion that if governments keep cutting taxes and roll back public programs, somehow the private sector will pick up the slack. Now there’s a campaign theme for Bush.