March 1, 1995

50 Years of the Federal Capital Gains Tax Burden

Download Special Report No. 45

Special Report No. 45

Executive Summary During each of the 50 tax years from 194 2 through 1992, almost every income group has borne some share of the federal capital gains tax burden. On an aver age annual basis, taxpayers making under $100,000 annually (in constant 1992 dollars) have paid almost one-third of all capital gains taxes. The remaining two-thirds of the capital gains tax burden has been split almost equally between the $100,000-to-$500,000 and the over-$500,000 income groups.

Many inter-related factors influence when a taxpayer will choose to realize a capital gain. Thus, one-year snapshots of the tax burden can prove misleading. The 50-year time span analyzed here, on a decade-by-decade basis, endeavors to provide a more consistent picture of the taxpayers that pay capital gains taxes.

The capital gains tax burden reported here assumes that capital gains are each taxpayer’s marginal source of income and are, therefore, subject to each taxpayer’s marginal income tax rate (as opposed to some type of average tax rate measure). This assumption is justified because in most cases taxpayers subject themselves to capital gains taxation only if they choose to realize capital gains. Although the capital gains tax burden was calculated each year using current-year income measures, each table and chart reflects the conversion o f all income measures (including income groups) and tax-burden measures into constant 1992 dollars, using the consumer price index.