The Bush Capital Gains Tax Cut after Four Years: More Growth, More Investment, More Revenues
Table of Contents
- Executive Summary
- The Capital Gains Tax and Revenue
- How the Capital Gains Tax Is Unlike Other Taxes
- Recent Trends in Capital Gains Tax Rates and Receipts
- Some Effects of the 2003 Capital Gains Tax Rate Cut
- Did the 2003 Tax Cut Increase the Budget Deficit?
- The Lock-in Effect of Capital Gains Taxes
- Was the 2003 Capital Gains Tax Cut “Fair”?
- Is It Fair to Tax Gains Due Solely to Inflation?
- About the Authors
The Capital Gains Tax and Revenue
“A capital gain is the difference between the price paid for an asset and the money received when it is sold.”
For all the controversy surrounding the tax treatment of capital gains, it is not a major revenue source for the government — although paradoxically, as the tax rate on capital gains has been reduced, the revenues raised from the tax have increased. In the early 1990s, capital gains tax collections amounted to between $35 billion and $50 billion per year. Since the 1997 and 2003 reductions in the capital gains tax rate — to 20 percent and 15 percent, respectively — receipts have skyrocketed, and now stand at more than $100 billion. But even with this substantial increase, capital gains taxes account for less than 5 percent of total federal revenues, as Table I shows. Even if the capital gains tax were abolished entirely with no offsetting receipts, the federal government would still collect 95 percent of the total tax receipts each year it would otherwise.