Because dividends are taxed at the same rate as capital gains under the 2003 Tax Act, a firm's strategy of paying low or no dividends primarily offers tax advantages to wealthy stockholders through tax deferral rather than as a result of a lower tax rate on current income.

Question

Quizplus · Accepted Answer

The statement is true, as the 2003 Tax Act taxed dividends and capital gains at the same rate, so a firm's decision to pay low or no dividends mainly benefits wealthy shareholders by allowing them to defer taxes rather than benefiting from a lower tax rate on their current income.

Because Dividends Are Taxed at the Same Rate as Capital