would it be irrational for it to have low dividend high growth stocks in its portfol 552168

Investment and Dividends – The Phew Charitable Trust pays no taxes on its capital gains or on its dividend income or interest income. Would it be irrational for it to have low-dividend, high growth stocks in its portfolio? Would it be irrational for it to have municipal bonds in its portfolio? Explain.

Use the following information to answer the next two questions:

Historically, the U.S. tax code treated dividend payments made to shareholders as ordinary income. Thus, dividends were taxed at the investor’s marginal tax rate, which was as high as 38.6 percent in 2002. Capital gains were taxed at a capital gains tax rate, which was the same for most investors and fluctuated through the years. In 2002, the capital gains tax rate stood at 20 percent.

In an effort to stimulate the economy, President George W. Bush presided over a tax plan overhaul that included changes in dividend and capital gains tax rates. The new tax plan, which was implemented in 2003, called for a 15 percent tax rate on both dividends and capital gains for investors in higher tax brackets. For lower tax bracket investors, the tax rate on dividends and capital gains was set at 5 percent through 2007, dropping to zero in 2008.