NCPA - National Center for Policy Analysis

Analysts Say Capital Loss Rules Should be Adjusted

September 19, 2001

Many lawmakers are talking about an economic stimulus package that would include a cut in capital-gains tax rates, says Tom Herman of the Wall Street Journal. Some analysts would rather change the capital-loss rules and allow investors to deduct more of their losses than they can today.

  • Under current law, investors can offset taxable gains on their stock portfolios with losses -- but only up to $3,000 for joint income tax filers ($1,500 if married filing separately); they can deduct this amount from ordinary income, such as wages.
  • Additional losses may be carried over into future years.
  • But the dollar limits haven't been changed in more than 20 years.

Experts say that if investors were able to fully offset their gains with losses, net capital gains would disappear, and in some years would be negative.

On the other hand, many economists say that reducing the capital-gains tax rate from 20 percent to 15 percent would increase federal income tax revenue -- as it did when rates were reduced in 1997. That is because investors would not hold on to stocks just to avoid realizing taxable gains.

Source: Tom Herman, "Tax Report," Wall Street Journal, September 19, 2001.

For text (WSJ subscribers)


Browse more articles on Tax and Spending Issues