Suppose that, in an effort to reduce the federal deficit, Congress increases the top personal tax rate on interest and dividends to 35% but retains a 15% tax rate on realized capital gains. The corporate tax rate stays at 35%. Compute the total corporate plus personal taxes paid on debt versus equity income if ( a ) all capital gains are realized immediately and ( b ) capital gains are deferred forever. Assume capital gains are half of equity income.

AppendixLO1