Problem $17-7$ Tax shields

Suppose that Congress sets the top personal tax rate on interest and dividends at $37\%$ and the top rate on realized

capital gains at $16\%.$ The corporate tax rate stays at $22\%.$ Assume capital gains are half of equity income.

a$.$ Compute the difference between the total corporate plus personal taxes paid on debt and the total taxes on

equity income if all capital gains are realized immediately.

b$.$ Compute the difference between the total corporate plus personal taxes paid on debt and the total taxes on

equity income if all capital gains are deferred forever.

Note: Do not round intermediate calculations. Round your answers to $4$ decimal places.

a$.$ Difference

b$.$ Difference