The current federal top marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. on long-term capital gains in the United States is a total of 23.8 percent (20 percent plus a 3.8 percent taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. to fund the Affordable Care Act) for taxpayers with adjusted gross incomes of $200,000 ($250,000 married filing jointly) or more. In addition, states and some localities levy taxes on capital gains income, which range from zero percent in states with no individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. , such as Florida, Texas, South Dakota, and Wyoming, to 13.3 percent in California.
An individual who has capital gains income is subject to both federal and state capital gains taxes. Taking into account the federal deductibility of state taxes and the phase-out of itemized deductions, the average top marginal capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. rate faced by U.S. taxpayers is 28.6 percent.
This is the 6th highest rate in the OECD. Taxpayers in most OECD countries face much lower capital gains tax rates than their counterparts in the United States. Only taxpayers in Denmark (42 percent), France (34.4 percent), Finland (33 percent), Ireland (33 percent), and Sweden (30 percent) face higher rates. The U.S. rate is about 10 percentage points higher than the OECD average (18.4 percent) and 5 percentage points higher than the weighted average (23.2 percent). Nine OECD countries full-exempt most capital gains income.
The United States currently places a heavy tax burden on saving and investment with its capital gains tax. The U.S.’s top marginal tax rate on capital gains, combined with state rates, far exceeds the average rates faced throughout the industrialized world. Increasing taxes on capital income, as suggested in the president’s recent budget proposal, would further the bias against saving, leading to lower levels of investment and slower economic growth. Lowering taxes on capital gains would have the reverse effect, increasing investment and leading to greater economic growth.
To learn more about capital gains taxes see our new paper: “The High Burden of State and Federal Capital Gains Tax Rates in the United States.”
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Top Marginal Tax Rate on Capital Gains, by OECD Country, 2015 |
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Rank |
Country |
Rate |
|
|
1 |
Denmark |
42.0% |
|
|
2 |
France |
34.4% |
|
|
3 |
Finland |
33.0% |
|
|
3 |
Ireland |
33.0% |
|
|
5 |
Sweden |
30.0% |
|
|
6 |
United States |
28.6% |
|
|
7 |
Portugal |
28.0% |
|
|
7 |
United Kingdom |
28.0% |
|
|
9 |
Norway |
27.0% |
|
|
9 |
Spain |
27.0% |
|
|
11 |
Italy |
26.0% |
|
|
12 |
Austria |
25.0% |
|
|
12 |
Germany |
25.0% |
|
|
12 |
Israel |
25.0% |
|
|
12 |
Slovak Republic |
25.0% |
|
|
16 |
Australia |
24.5% |
|
|
18 |
Canada |
22.6% |
|
|
19 |
Estonia |
21.0% |
|
|
20 |
Japan |
20.3% |
|
|
21 |
Chile |
20.0% |
|
|
21 |
Iceland |
20.0% |
|
|
23 |
Poland |
19.0% |
|
|
25 |
Hungary |
16.0% |
|
|
26 |
Greece |
15.0% |
|
|
27 |
Mexico |
10.0% |
|
|
28 |
Belgium |
0.0% |
|
|
28 |
Czech Republic |
0.0% |
|
|
28 |
Korea |
0.0% |
|
|
28 |
Luxembourg |
0.0% |
|
|
28 |
Netherlands |
0.0% |
|
|
28 |
New Zealand |
0.0% |
|
|
28 |
Slovenia |
0.0% |
|
|
28 |
Switzerland |
0.0% |
|
|
28 |
Turkey |
0.0% |
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|
OECD Simple Average |
18.4% |
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OECD Weighted Average |
23.2% |
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Source: Ernst and Young and Deloitte Tax Foundation Calculations. |
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