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Thursday, February 21, 2013

Californians Pay Second Highest Capital Gains Tax Rate in the World

Tax Foundation logoTax Foundation: The High Burden of State and Federal Capital Gains Taxes:

As Congress begins to debate tax reform in the coming months, there is one tax that they should pay close attention to: the capital gains tax. The capital gains tax is a tax on profit through the sale of property or investments. At the beginning of this year, the top marginal statutory capital gains tax rate was increased to 23.8% from 15%. Although lower than the tax on ordinary income, states also tax capital gains, some of them as high as 13.3%, adding an additional tax burden to savers and investors. Some taxpayers could pay up to a 33% tax on capital gains, a rate that far exceeds rates throughout the world. This high tax rate has long-term negative implications for the economy as people save and invest less and capital seeks higher returns in other countries.

Long-term Capital Gains Rate

Rank

Country/State

Capital Gains Rate

1

Denmark

42.0%

2

California

33.0%

3

France

32.5%

4

Finland

32.0%

5

New York

31.4%

6

Oregon

31.0%

7

Delaware

30.4%

8

New Jersey

30.4%

9

Vermont

30.4%

10

Maryland

30.3%

11

Maine

30.1%

12

Ireland

30.0%

13

Sweden   

30.0%

14

Idaho

29.7%

15

Minnesota

29.7%

16

North Carolina

29.7%

17

Iowa

29.6%

18

Hawaii

29.4%

19

District of Columbia

29.1%

20

Nebraska

29.1%

21

Connecticut

29.0%

22

West Virginia

28.9%

23

Ohio

28.7%

24

Georgia

28.6%

25

Kentucky

28.6%

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Comments

It's a good thing that California residents aren't taxed on the inflationary gains on their homes when they downsize or leave. Oh, wait...

Posted by: AMTbuff | Feb 21, 2013 3:02:12 PM

I'm surprised with the regularity with which the debate about who has the highest tax rates simply adds, as here, the maximum state and federal tax rates together, without acknowleging the possibility that the state tax may be deductible in arriving at federal taxable income. There are a lot of variables of course, but just ignoring the possibility doesn't seem particularly useful. What am I missing?

Posted by: Dave Anderson | Feb 22, 2013 9:25:14 PM

Dave, that 33% for California is NOT a straight addition of 23.8% federal plus 13.3% state. Deductibility is accounted for. Otherwise the result would be higher.

However for taxpayers in the AMT phaseout range the marginal rate are quite a bit higher. The federal rate is 20% plus 8% for phaseout of AMT exemption plus 3.8% for Medicare tax plus the full state rate of 9.3% or 10.3%, since this tax on not deductible under AMT. The total marginal rate on long-term capital gains is 41.1% to 42.2% for these affluent but not rich taxpayers.

Posted by: AMTbuff | Feb 25, 2013 11:40:07 AM