Would a capital gains tax increase mean anything to you?
A capital gains tax is the tax paid on the profit when you sell an
asset. The asset might be stocks and bonds, art, a business, or property,
as examples. This rate is for assets that have been held for more than
one year; for investments held for less than one year, the taxpayer
must pay the ordinary income tax rate on the profit.
Currently, the capital gains tax rate is 0%, 15%, or 20%, depending on
your income. The maximum tax rate on ordinary income is considerably
higher at 37%.
Originally, the government initiated a lower tax for capital gains to
incentivize people to invest in more risky businesses and startups and
to help grow the economy. In 1942 the tax was 25%; in 1972, it was
Here are a few facts:
• In 2012, the most recent year for which figures are available, 75%
of the taxes paid under the capital gains rules were for the sale of
stocks and bonds. That’s not risking your investment money on
• In 2017, people in the top 1% based on income received 26% of
their income from capital gains, and the top 20% of earners got
36% of their income from capital gains. In contrast, the bottom
80% of earners got only 1% of their income from capital gains.
The Biden administration is considering raising the top capital gains
tax rate from 20% to 39.6% for taxpayers earning $1 million or more
per year. This tax rate rise, if it happens, would have the most effect on
the top 20% of income earners. It would have minimal effect on the
An individual does not pay any taxes until the asset is sold.
Because this gain is taxed at capital gains tax rate no Social Security tax is
The Penn Wharton Budget model estimates that raising the top rate
to 24.2% would increase revenues by $66 billion over ten years.
The Congressional Budget Office estimates that raising the top capital
gains rate to 22% would increase revenue by $75 billion over ten years.
I don’t think anyone knows how much revenue would be collected.
Still, it’s undoubtedly a few billion per year if the rate were to be
increased by some percentage points.