The firm must pay corporate income tax on cash used for repurchases and dividends, but it can use beforetax cash to pay interest. When the firm repurchases shares, investors receive the gains as capital gains (or, equivalently, an increase in the percentage of the firm that they own). Investors can easily shelter most of these payouts because they are capital gains, which face a lower statutory tax rate and which can be delayed until opportune. In contrast, investors face the full brunt of Uncle Sam on cash that comes to them in the form of interest payments. Dividend payments receive a treatment that is in between the two (impossible to delay, but subject to a lower statutory tax rate).