In 2003, President Bush proposed a change in the tax law that would have eliminated the tax on dividends received by stockholder. The same proposal also would have increased the basis of stocks by the amount of new retained earnings per share-in effect reducing the capital gains tax to almost zero. In total, the proposal would have, to a large extent, put debt and equity financing on equal footing from a tax standpoint. The proposal did not pass, and instead, the tax rate on dividends was reduced to the rate on capital gains. However, if a similar proposal at some point becomes law, how would it tend to affect
(a) Corporate capital structures,
(b) Corporate share repurchases,
(c) Dividend payout ratios, and
(d) Any conclusions one might reach regarding the three dividend preference theories?