Proposed Top Combined Marginal Capital Gains Tax Rate Would Be Third-Highest in OECD

October 4, 2021

Under the House Build Back Better Act (BBBA), the United States would tax capital gains at the third-highest top marginal rate among rich nations, averaging nearly 37 percent.

In the U.S., long-term gains currently face a top marginal tax rate of 23.8 percent at the federal level, the result of a maximum 20 percent capital gains tax rate plus a 3.8 percent net investment income tax. The House Build Back Better Act proposal would raise the top rate to 28.8 percent, and on top of that, apply a new 3 percent tax on income of top earners, including capital gains. The resulting 31.8 percent top marginal tax rate would be the highest federal tax rate on capital gains since the 1970s—and above the generally estimated revenue-maximizing rate of 28 percent. 

When including state-level policies, the average top marginal combined tax rate on capital gains in the U.S. would rise to 37 percent, up from 29 percent under current law.

Under the House Build Back Better Act proposal, the U.S. would have the third-highest top marginal tax rate on long-term gains among nations in the Organisation for Economic Co-operation and Development (OECD). The OECD average excluding the United States currently sits at 18.9 percent, with the highest rate levied by Denmark at 42 percent.

Reconciliation bill capital gains tax proposals. Proposed federal capital gains tax rate under House Democrats Build Back Better Act

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The 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.