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related 4.64 — strongly supporting 23 facts
Capital gains and dividends are both primary categories of investment returns {fact:8, fact:9} that are frequently grouped together in federal tax policy discussions {fact:1, fact:2, fact:3}. They are often subject to the same preferential tax rates {fact:4, fact:11, fact:13} and are commonly analyzed together regarding their impact on income inequality and federal revenue {fact:10, fact:12, fact:18}.
Facts (23)
Sources
How the Government Subsidizes Wealth Inequality americanprogress.org 16 facts
measurementThe two primary tax subsidies for capital gains and dividends are estimated to cost the U.S. federal government approximately $2 trillion over the next 10 years, with the benefits accruing primarily to the wealthiest Americans.
measurementInvestment income, specifically capital gains and dividends, is taxed at a top rate of 23.8 percent, which includes the 3.8 percent surtax on investment income imposed by the Affordable Care Act.
perspectiveThe Center for American Progress proposed a tax reform plan that would tax dividends as ordinary income and tax capital gains at a top rate of 28 percent, including the ACA surtax.
claimBy taxing capital gains and dividends at a lower rate than other income, the federal government increases the likelihood that the rate of return on capital will exceed the economic growth rate, which is a key driver of Thomas Piketty’s theory of rising future economic inequality.
perspectiveA bipartisan commission led by former Senate Budget Committee Chairman Pete Domenici (R-NM) and Alice Rivlin proposed taxing capital gains and dividends as ordinary income, with an exemption for the first $1,000 of capital gains and a lower top income tax rate of 27 percent.
claimRepealing step-up in basis and low tax rates for capital gains and dividends would keep the national debt on a downward path as a share of GDP through the end of the five-year budget window analyzed by the Congressional Budget Office.
claimThe U.S. federal government provides two specific tax subsidies that contribute to wealth inequality: reduced tax rates on capital gains and dividends, and the exemption of capital gains from income tax upon the death of an investor.
quoteThomas L. Hungerford of the Economic Policy Institute stated: “By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends.”
perspectiveIn the Tax Reform Act of 2014, House Ways and Means Committee Chairman Dave Camp (R-MI) proposed allowing investors to exclude 40 percent of their capital gains and dividends from taxable income, with the remaining 60 percent taxed at ordinary rates up to 35 percent.
measurementThe Congressional Budget Office (CBO) estimated that the total 10-year cost for major tax expenditures, including step-up in basis and reduced rates on capital gains and dividends, was $1.984 trillion from 2014 to 2023.
perspectiveSome defenders of investment tax breaks argue that they reduce double taxation, which occurs when profits are taxed at both the corporate level and the individual level when distributed to shareholders as capital gains or dividends.
measurementThe nonpartisan Congressional Budget Office estimates that the tax expenditure for low rates on capital gains and dividends will cost the federal government $1.34 trillion in revenue over the next 10 years.
claimIf the federal government eliminated step-up in basis and reduced tax rates on capital gains and dividends, federal revenues would be sufficient to cover all federal programs over the 2014-2023 period, resulting in a primary budget surplus.
perspectiveThe bipartisan deficit reduction commission chaired by Erskine Bowles and former Senator Alan Simpson (R-WY) proposed eliminating preferential tax rates for capital gains and dividends while reducing the top income tax rate to 28 percent.
perspectiveA bipartisan tax reform bill from Senators Ron Wyden (D-OR) and Dan Coats (R-IN) proposed exempting 35 percent of capital gains and dividends from taxation and taxing the remaining amount at ordinary rates of up to 35 percent, resulting in an effective tax rate of 26.55 percent with the ACA surtax.
measurementUnder the Tax Reform Act of 2014 proposed by Dave Camp, the effective tax rate on capital gains and dividends would be 21 percent, or 24.8 percent when including the Affordable Care Act (ACA) surtax.
5.16: The Role of Tax Policy - Social Sci LibreTexts socialsci.libretexts.org 3 facts
measurementIn 2003, the United States federal government lowered the tax rate for dividends and capital gains from 28 percent to 15 percent.
quoteThe director of Citizens for Tax Justice stated: “The low taxes on capital gains and dividends are why people who make a ton of money, which is largely from investment income, do awfully well. The Warren Buffetts, the hedge fund managers—they pay really low tax rates.”
measurementDividends and capital gains account for 0.7 percent of the income of the bottom four-fifths of United States families, 18.8 percent of the income of the top fifth, 38.2 percent of the income of the top 1 percent, and 51.9 percent of the income of the top 0.1 percent.
6 Core Areas of Personal Finance | CEE councilforeconed.org 2 facts
Wealthfront Classic Portfolio Investment Methodology White Paper research.wealthfront.com 1 fact
claimStocks can be relatively tax-efficient due to favorable tax treatment on long-term capital gains and qualified dividends.
Understanding The Risk And Return Tradeoff - FasterCapital fastercapital.com 1 fact
claimReturn is the profit earned from an investment, which can take the form of capital gains (selling an asset at a higher price than the purchase price), dividends from stocks, or interest payments from bonds.