Federal income taxes favor the retention of earnings over the distribution of earnings.

Question

Federal income taxes favor the retention of earnings over the distribution of earnings.​

Quizplus · Accepted Answer

Federal income taxes impose lower tax rates on retained earnings (those that are reinvested into the company) compared to distributed earnings (those that are paid out to shareholders as dividends). This creates an incentive for companies to keep earnings within the company for reinvestment purposes rather than distributing them to shareholders.

Federal Income Taxes Favor the Retention of Earnings Over the Distribution