There Are No Personal Taxes on Income from Stocks

question 56

Essay

$$\begin{array}{l}\text { Consider an economy in which there are three groups of investors and no others. }\\\begin{array} { | l | l | l | } \hline & \text { Marginal tax rate } & \text { Personal wealth } \\\hline \text { Group } & \text { on bonds } & \text { (£ millions) } \\\hline \text { Plumbers } & 60 \% & 2,500 \\\hline \text { Doctors } & 50 \% & 700 \\\hline \text { Lawyers } & 40 \% & 100 \\\hline\end{array}\end{array}$$ There are no personal taxes on income from stocks.An investment is available that pays a tax-free 4%.The tax rate is 50%.Total corporate income before earnings and taxes (EBIT) is £224 million forever.What is the maximum debt-to-equity ratio for the economy as a whole?

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