The President’s budget has a proposed increase in the federal 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.
Under current law, the federal 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. rate is 20 percent plus a 3.8 percent net investment tax. State and local governments in the United States also levy income taxes on capital gains as low as zero in states with no income taxes to as high as 13.3 percent in California. Combined, this leads to top marginal tax rates as high as 33 percent in California. The average tax rateThe average tax rate is the total tax paid divided by taxable income. While marginal tax rates show the amount of tax paid on the next dollar earned, average tax rates show the overall share of income paid in taxes. across all states under current law is 28.4 percent.
Under Obama’s budget, the federal tax rate would increase to 24.2 percent. Add that to the 3.8 percent net investment tax, you get a top rate of 28 percent.
Combine that with state and local rates and top marginal tax rates would exceed 37 percent in California and average 32.6 percent across the United States.
|
Top Marginal Capital Gains Tax Rates under Current Law and Proposed FY2016 Budget |
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|
State |
Current Law |
Under Obama FY2016 Budget |
|
Alabama |
27.49% |
31.58% |
|
Alaska |
23.80% |
28.00% |
|
Arizona |
27.72% |
31.92% |
|
Arkansas |
27.94% |
32.14% |
|
California |
33.07% |
37.27% |
|
Colorado |
27.78% |
31.98% |
|
Connecticut |
29.03% |
33.23% |
|
Delaware |
29.03% |
33.23% |
|
Florida |
23.80% |
28.00% |
|
Georgia |
28.60% |
32.80% |
|
Hawaii |
31.62% |
35.82% |
|
Idaho |
29.45% |
33.65% |
|
Illinois |
28.00% |
32.20% |
|
Indiana |
27.82% |
32.02% |
|
Iowa |
29.57% |
33.56% |
|
Kansas |
27.88% |
32.08% |
|
Kentucky |
29.51% |
33.71% |
|
Louisiana |
27.92% |
31.98% |
|
Maine |
29.78% |
33.98% |
|
Maryland |
30.27% |
34.47% |
|
Massachusetts |
28.12% |
32.32% |
|
Michigan |
27.73% |
31.93% |
|
Minnesota |
30.93% |
35.13% |
|
Mississippi |
28.00% |
32.20% |
|
Missouri |
28.72% |
32.92% |
|
Montana |
27.94% |
32.14% |
|
Nebraska |
29.11% |
33.31% |
|
Nevada |
23.80% |
28.00% |
|
New Hampshire |
23.80% |
28.00% |
|
New Jersey |
30.40% |
34.60% |
|
New Mexico |
26.46% |
30.66% |
|
New York |
31.45% |
35.65% |
|
North Carolina |
28.48% |
32.68% |
|
North Dakota |
26.34% |
30.54% |
|
Ohio |
29.22% |
33.42% |
|
Oklahoma |
28.15% |
32.35% |
|
Oregon |
31.02% |
35.22% |
|
Pennsylvania |
27.74% |
31.94% |
|
Rhode Island |
28.60% |
32.80% |
|
South Carolina |
27.35% |
31.55% |
|
South Dakota |
23.80% |
28.00% |
|
Tennessee |
23.80% |
28.00% |
|
Texas |
23.80% |
28.00% |
|
Utah |
28.00% |
32.20% |
|
Vermont |
30.39% |
34.59% |
|
Virginia |
28.45% |
32.65% |
|
Washington |
23.80% |
28.00% |
|
West Virginia |
28.91% |
33.11% |
|
Wisconsin |
28.21% |
32.41% |
|
Wyoming |
23.80% |
28.00% |
|
DC |
30.39% |
34.59% |
|
U.S. Average |
28.44% |
32.64% |
|
Note: U.S. Average Weighted by Amount of Capital Gains in Each State. Pease limitation on itemized deductions affects taxpayers in states with income taxes. |