Final answer:
Corporate taxes generally decrease the before-tax rate of return on capital by reducing the amount of profit available for reinvestment or distribution. The direct effect is a lower before-tax return, though broader economic implications can vary.
Step-by-step explanation:
The question 'What 2 ways do corporate taxes affect the before-tax rate of return on capital?' addresses the influence of corporate tax structures on investors and businesses. Corporations assess their profitability through measures such as the before-tax rate of return on capital. This assessment helps investors recognize the potential for investment growth prior to taxation. Option B, which states that corporate taxes 'Decrease the before-tax rate of return on capital,' is the most accurate answer. Corporate taxes represent a cost to the business and reduce the amount of profit available for reinvestment or distribution to shareholders. The more substantial the corporate tax burden, the lower the before-tax return because the company must generate higher pre-tax profits to net the same after-tax profits as would be needed in a lower tax environment. On the other hand, an increase in corporate taxes does not directly increase the before-tax rate of return on capital. Instead, it may indirectly affect corporate decisions about investment and growth, possibly leading to a need for higher before-tax returns to compensate for the larger tax burden.
Corporate taxes can also have broader economic implications, as detailed in the provided information about corporate profits, tax rates, and economic theories like the Laffer curve and how changing tax rates affect disposable income and incentives for productivity and growth within an economy. Overall, the direct effect of corporate taxes is to reduce the amount of pre-tax profit available, but the broader economic effects are complex and subject to differing theories and economic conditions.