Capital gains rates are paid on dividend income

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Reference no: EM131245511

Miller and Scholes [1978] suggest that it is possible to shelter income from taxes in such a way that capital gains rates are paid on dividend income.

Furthermore, since capital gains need never be realized, the effective tax rate will become zero.

Why would this scheme not be used to shelter all income, instead of just dividend income? The implication would be that no one has to pay taxes ever!

Reference no: EM131245511

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