Business Capital Gains and Dividends Taxes

The taxation of dividends and capital gains is one of the most controversial issues in public finance. Relatively high effective tax rates on capital income, particularly that emanating from the corporate sector, have the potential to discourage investment and impede economic growth.

Corporations must pay corporate income taxes on profits before they distribute dividends to shareholders, and shareholders pay an additional, individual-level tax on those amounts. Imposing two layers of taxation on corporate income can result in a total tax rate on capital income from corporations that is substantially higher than the rate on other types of income.

In recent years, policymakers have become concerned about the economic damage caused by relatively high effective tax rates on capital income, and in 2003 the tax rate on capital gains and dividend income was lowered to 15 percent.


Related Articles

Testimony: The Tax Code as a Barrier to Entrepreneurship

February 15, 2017

Trends in State Tax Policy

December 5, 2016

How do Clinton and Trump’s Tax Plans Compare?

October 18, 2016

2017 State Business Tax Climate Index

September 28, 2016

Short Termism, Hillary Clinton’s Made Up Problem

May 9, 2016

How Does Capital Gains Taxation Affect Entrepreneurial Activity?

May 5, 2016

Corporate Integration: An Important Component of Tax Reform

April 21, 2016

How Would the Presidential Candidates’ Tax Plans Impact Capital Gains?

March 31, 2016

Are Dividend Taxes Harmless? Don’t Bet On It!

January 4, 2016

2015 International Tax Competitiveness Index

September 28, 2015

China to Remove Dividend Tax for Long-Term Shareholders

September 14, 2015

Location Matters 2015

August 26, 2015

Six Changes Every Tax Reform Plan Should Include

August 7, 2015

The Tax Burden on Personal Dividend Income across the OECD 2015

June 25, 2015

Tennessee Policymakers Park Hall Tax Repeal, Raise Exemption Slightly

April 27, 2015

Location Matters

February 29, 2012