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1 Kyle E. Pomerleau, The High Burden of State and Federal Capital Gains Taxes 1 (2013)

handle is hein.taxfoundation/ffdgcxz0001 and id is 1 raw text is: FOUNDATION February 20, 2013 No. 362 The High Burden of State and Federal Capital Gains Taxes By Kyle E. Pomerleau Introduction As Congress begins to debate tax reform in the coming months, there is one tax that they should pay close attention to: the capital gains tax. The capital gains tax is a tax on profit through the sale of property or investments. At the beginning of this year, the top marginal statutory capital gains tax rate was increased to 23.8 percent from 15 percent. Although lower than the tax on ordinary income, states also tax capital gains, some of them as high as 13.3 percent, adding an additional tax burden to savers and investors. Some taxpayers could pay up to a 33 percent tax on capital gains, a rate that far exceeds rates throughout the world. This high tax rate has long-term negative implications for the economy as people save and invest less and capital seeks higher returns in other countries. Lawmakers should consider the negative economic impacts of such a high tax on investment and look to lower it in any tax reform package. How the States Compare On January 1, the Senate passed H.R. 8, the American Taxpayer Relief Act of 2012. Among a number of major changes to the tax code in 2013, America's top marginal statutory tax rate for capital gains increased from 15 percent to 20 percent, plus a 3.8 percent surtax for the Affordable Care Act.1 This increased the U.S. average rate (average of state capital gains tax rates + federal rate) to 27.9 percent from 19.1 percent,2 a rate that far exceeds the Organization for Economic Cooperation and Development (OECD) average of 16.4 percent. (See Figure 1.) Figure I. Top Individual Capital Gains Tax Rates U.S. and OECD averages 2012 and 2013 30% 25% 20% 15% 10% 5% 0% Source: Prante & John; Carroll.3 1 Joseph Henchman, Details of the Fiscal CliffDeal, TAx FOUNDATION TAx POLICY BLOG, Jan. 1, 2013, 2 Gerald Prante & Austin John, Top Marginal Effective Tax Rates by State and by Source of Income, 2012 Tax Law vs. 2013 Scheduled Tax Law (as enacted in ATRA) (Feb. 2013),ht-://i)-,.i ers.Co( i/so 3.1 , ,,cfinabrcid-2-.76526. 01

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