Tax Policy Issues

ACCF Study: U.S. Capital Gains Tax Rates Higher Than Abroad

Most industrial and developing countries tax individual and corporate capital gains more lightly than does the United States, according to a survey of 24 industrialized and developing countries by Arthur Andersen LLP.

  • Individuals' short-term gains are taxed at a maximum 39.6 percent rate in the U.S. compared to an average maximum of 19.4 percent for the sample as a whole (see figure).

  • Long-term gains face a tax rate of 20 percent in the United States versus an average of 15.9 percent for all the countries in the survey.

  • Thus, U.S. individual taxpayers face tax rates on long-term gains that are 26 percent higher than those paid by the average investor in other countries.

In addition, the United States is one of only five countries in the survey with a holding period for the investment to qualify as a capital asset.

Similarly, both short- and long-term corporate capital gains are taxed at a rate of 35 percent in the U.S., compared to an average of 22.8 percent for short-term gains and 19.6 percent for long-term gains in the sample as a whole. Thus U.S. corporations face long-term capital gains tax rates almost 80 percent higher than their competitors abroad.

These figures include reductions in the individual capital gains tax rates made by the Taxpayer Relief Act of 1997, and the shortened holding period for long-term capital gains -- from 18 to 12 months -- in the IRS Restructuring and Reform Act of 1998.

Source: "An International Comparison of Capital Gains Tax Rates," Special Report, August 1998, American Council for Capital Formation Center for Policy Research , 1750 K street, N.W., Suite 400, Washington, D.C. 20006, (202) 293-5811.

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