Tax Policy

State Capital Gains Tax Rates

Although many states raised capital gains taxes in tandem with increases in the federal rate, they did not lower them when the federal government lowered its top rate from 28 percent to 20 percent last year.

Some economists attribute last year's healthy 3.8 percent real economic growth, as well as the 4.2 percent growth rate for the first quarter of this year, in part to lower national rates. This is a sizzling performance compared to the 1.9 percent average annual growth rate from 1990 to 1996 under higher capital gains rates.

The several states treat capital gains differently:

  • No capital gains tax is imposed on individual citizens in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

  • Mississippi levies no capital gains tax on in-state investments, and Massachusetts claims a zero percent tax rate on investments held at least six years.

  • Wisconsin, Vermont, South Carolina, Rhode Island, Idaho and Arkansas offer lower capital gains rates than the general personal income tax rate.

The remaining states would do well, reformers say, by at least raising to 50 percent the exclusion allowed on capital gains. Even better, they should recognize that the system penalizes investing and entrepreneurship and ditch the whole process.

Source: Raymond J. Keating (Small Business Survival Committee), "Capital Gains Kills," Washington Times, May 27, 1998.

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