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The Triple Taxation of Corporate EquityProfits

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  • Richard Marliave

Abstract

In the absence of liquidations and share repurchases, the value of corporate equity is the net present value of all future dividends. This net present value is subject to three taxes: the corporate income tax, the dividend income tax, and the capital gains tax. Algorithms are developed for calculating the aggregate tax rate on corporate equity net present value. Although the lowest aggregate tax rate occurs when all earnings are paid as dividends, corporations increase shareholder value by reinvesting earnings whenever the after-tax returns of doing so exceed the discount rate. It is these high return investments that are subject to the highest aggregate tax rates, potentially exceeding 90 percent of pre-tax value under current law. Copyright International Atlantic Economic Society 2005

Suggested Citation

  • Richard Marliave, 2005. "The Triple Taxation of Corporate EquityProfits," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(3), pages 337-358, September.
    • Handle: RePEc:kap:atlecj:v:33:y:2005:i:3:p:337-358
    DOI: 10.1007/s11293-005-8174-8
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    Cited by:

    1. Hegemann, Annika, 2016. "Hemmt die Veräußerungsgewinnbesteuerung unternehmerische Flexibilität?," arqus Discussion Papers in Quantitative Tax Research 203, arqus - Arbeitskreis Quantitative Steuerlehre.

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    Keywords

    H22;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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