Dividend Exclusion Rule

Corporations in America used to suffer from "double taxation"—that is, they'd sell their lugnuts, be taxed on profits, and if they did a really good job, they could pay a dividend. Then the dividend which went out to the shareholders they worked for would be taxed again. So that nice dollar of profit turned into a quarter pretty fast.

Then the DER came in and allowed corporations to deduct the dividend they paid from their tax bill so that the dividends were taxed once—at the level of the shareholder to whom they were distributed.