Capital Gains & Dividends

CFA Level II Corporate Finance
#1

I think my brain freezed, so I need help on this although I think it is lame from me.

How would a decrease in the capital gain tax rate prompt a decline in a company’s overall payout ratio.

How is capital gains related to a company’s dividend distribution, is not capital gain the gain received from a sale of an investment?

#2

If capital gains rates decline, then investors may want capital gains over dividends. At an extreme case, let’s say capital gains tax rates drops to only 5% while dividend tax rates are 15%… well which do you prefer? The company will decline their payout ratio based on investor preference.