The double taxation problem occurs because households pay taxes on dividends and capital gains from stock and corporations pay taxes on corporate profits.

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The double taxation problem occurs when both households and corporations pay taxes on the same income, such as dividends and capital gains from stock. Household investors pay taxes on their share of corporate profits in the form of dividends and capital gains, and corporations also pay taxes on their profits. This results in the same income being taxed twice, creating a double taxation problem.

The Double Taxation Problem Occurs Because Households Pay Taxes on Dividends