Suppose that the government has a wealth tax at the rate of 2% on the assessed value of wealth. Suppose that Wendy has invested all
Suppose that the government has a wealth tax at the rate of 2% on the assessed value of wealth. Suppose that Wendy has invested all her wealth in a private corporation. Her wealth amounts to $4,000,000 in shares of this company. Suppose that this stock delivers a dividend income of $200,000 per year. Assume there is no inflation and that interest rates are 3%. Show your work. 1. Wendy's wealth tax liability is $ 2. Wendy's shares generate a net of tax income of $ per year. 3. Suppose the Conservative party was elected on a platform of eliminating the wealth tax. The value of Wendy's shares if the wealth tax was eliminated would be $ 4. The elimination of the wealth tax would reduce government tax revenue and create a budget deficit. Suppose that the country currently has no income tax, but the deficit has the government considering introducing a tax on dividend income that would replace the lost wealth tax revenue. A dividend income tax rate of % would generate the same amount of revenue from Wendy as the old wealth tax. 5. Suppose that the Conservatives lost power to a newly elected progressive government determined to reduce inequality and fund progressive social policies. To do this, the new progressive government decided to eliminate the dividend income tax and restore the wealth tax, though at a rate of 3% of wealth. By increasing the wealth tax from 0% to 3% of assessed value of wealth, the value of Wendy's shares would become $
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