Paul L. Caron

Monday, October 10, 2011

Sullivan: Are Capital Gains Double Taxed?

Tax Analysts Martin A. Sullivan (Tax Analysts), Are Capital Gains Double Taxed?, 133 Tax Notes 131 (Oct. 11, 2011):

It is technically correct in some situations but misleading as a generalization to claim that capital gains are double taxed. The effective tax rate on capital gains can be zero, or it can be twice the top individual rate. When high effective capital gains rates do occur, the main culprit is the corporate tax (assuming the burden of the tax falls on shareholders). Instead of providing special relief for capital gains, it would be far better to address this problem by reducing the corporate tax rate or by integrating the corporate and individual income taxes. We have a corporate tax problem, not a capital gains problem. If high levels of inflation return, tax relief for all types of capital income should be considered—with capital gains receiving the lowest priority.

Capital Gain as a Percentage of Total AGI for
Top 400 Individual Taxpayers, 1992-2006
Cap Gains
Source: IRS, Statistics of Income division, The 400 Individual Income Tax Returns Reporting the Highest Adjusted Gross Incomes Each Year, 1992-2006.

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Yes, capital gains are double taxed, but that's common, right? You fund your savings account with after-tax dollars, then the interest is taxed. The sales tax is levied against dollars that were already subject to the income tax.

Posted by: American Delight | Oct 10, 2011 6:21:02 AM