Question: Suppose that Aviva can earn supplemental in come by working overtime
Suppose that Aviva can earn supplemental in-come by working overtime. She intends to use any income she earns to buy shares of stock in a corporation, with the intention of leaving the shares to her children in her will. She is 60 years old and expects to live 25 more years. Aviva faces the following marginal tax rates: a 35 percent combined income and payroll tax, a 35 percent corporate tax paid by the firm whose stock she buys, a 15 percent tax on the dividends earned ( there are no capital gains), and a 45 percent tax on her estate when she dies. If the before- tax return on the stock is 7 percent, how much will Aviva’s children get on every dollar Aviva earns in supplemental income? How does this compare to their gain if there were no taxes?
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