The current federal top marginal tax rate on long-term capital gains in the United States is a total of 23.8 percent (20 percent plus a 3.8 percent tax 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 tax, 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 tax 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.” Top Marginal Tax Rate on Capital Gains, by OECD Country, 2015 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% OECD Simple Average 18.4% OECD Weighted Average 23.2% Source: Ernst and Young and Deloitte Tax Foundation Calculations.
