Current tax laws have which of the following effects?
A) Favor dividends because there are no capital gains taxes on dividends.
B) Do not favor capital gains because the tax must be paid as the value of the stock increases,whether or not the stock is sold.
C) Favor capital gains because the tax does not have to be paid until the stock is sold.
D) Do not favor dividends or capital gains for most people because different people are in different tax brackets.
E) Favor dividends since dividends are tax-deductible for the paying corporation whereas retained earnings,which produce capital gains,are not tax-deductible.

Question

Quizplus · Accepted Answer

Current tax laws favor capital gains because the tax does not have to be paid until the stock is sold. There are also lower tax rates for long-term capital gains compared to ordinary income tax rates. Option A is incorrect because while dividends are taxed at a lower rate than ordinary income, there are still taxes on dividends. Option B is incorrect because capital gains taxes are only paid when the stock is sold, not as the value of the stock increases. Option D is incorrect because while people may be in different tax brackets, the overall tax law still favors capital gains. Option E is incorrect because dividends are not tax-deductible for the paying corporation.

Current Tax Laws Have Which of the Following Effects