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7 The US Congress and President-elect Biden are expected to reverse the last administration's fiscal policies and increase marginal tax rates on corporations to partly
7 The US Congress and President-elect Biden are expected to reverse the last administration's fiscal policies and increase marginal tax rates on corporations to partly offset the very large deficit and accumulated debt. First, from a loanable fund's basis (% on vertical axis and $ on horizontal axis), how and why should the projected corporate income tax increase impact the yield on corporate bonds? Note whether the supply and/ or demand curve should shift and the direction of the shift. Second, what will be the impact of the tax change and bond yield shift for US companies if the tax change leads to a shift in capital structure? That is, will firms be more or less likely to rely on debt? Why? 3
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