Center for Federal Tax Policy

Individual 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

Tax Plan Floated as Bailout Alternative

September 24, 2008

Questions About the Obama Tax Plan

August 14, 2008

What Capital Gains Tax Rate Does Obama Favor?

August 11, 2008

Would Obama’s Tax Plan Cost Jobs?

August 7, 2008

Capital Gains Tax Continues to Roil Economic Debate on Anniversary of Bush Tax Cut

May 27, 2008

Presidential Campaigns to Address Major Domestic Policy Issues

April 28, 2008

Obama and Gibson Capital Gains Tax Exchange

April 17, 2008

Capital Gains Taxes and Inflation

July 31, 2007

New Tax Foundation Primer on Investment Income Taxation

July 17, 2007

As Presidential Candidates Target Investment Income for Higher Taxes, Which States Stand to Lose the Most?

July 16, 2007

Federal Individual Income Tax: Exemptions and Treatment of Dividends, 1913-2006

December 12, 2006

Issues in the Indexation of Capital Gains

November 22, 2006

Double-Taxing Capital Income: How Bad Is the Problem?

November 16, 2006

Tax Court Rules Lottery Winnings Are Not Capital Gains

November 14, 2006

Growing AMT Wiping Out Capital Gains and Dividend Tax Reductions

July 24, 2006

Majority of Taxpayers Affected by AMT Also Claim Capital Gains or Dividend Income

February 26, 2006

The Importance of Dividend Income for Low-Income Seniors

February 8, 2006

Reliance on Capital Gains and Dividend Income Tends to Rise with Age

December 14, 2005

Majority of Seniors Benefit from Reduced Capital Gains and Dividend Tax Rates

December 6, 2005

Taxable Dividends Vary Dramatically by State

January 16, 2003