Monthly Archives: February 2015

CAPITAL GAINS TAXES: Empirical Analysis

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The following day, May 2, the President and Congressional leaders announced an agreement to balance the budget by 2002 and, among other things, reduce the capital gains tax rate. At the announcement OMB Director Raines admitted that the revision had enabled the negotiators to “make some adjustments.” He stated that the revision had provided an […]

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CAPITAL GAINS TAXES: Overview 5

If the reservation price exceeds the share’s tax basis, the derivative is positive, indicating that a decrease in the capital gains tax rate will reduce the price that the shareholder will demand to sell his stock, potentially resulting in a price decline. We are unaware of any study that provides evidence directly supporting this characterization […]

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CAPITAL GAINS TAXES: Overview 4

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Earnings, however, need not eventually be paid out in dividends. In fact, the mean dividend payout for U.S. companies is less than 20 percent of current earnings with the median company paying no dividends. Instead, firms can distribute corporate profits and reduce E&P without shareholders facing dividend taxes. For example, companies can buy their own […]

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CAPITAL GAINS TAXES: Overview 3

The derivative in equation (9) is negative when F>D1. In other words, if firms retain part of their cash flow, a decrease in the capital gains tax rate increases their stock prices and the extent of the price increases varies with their dividend payouts. If all cash flows are distributed as dividends (i.e., F=D1), then […]

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