1990: Preferential rates for capital gains were restored when the maximum tax rate on ordinary income grew to 31 percent, because capital gains remained taxed at 28 percent.14
1993: The maximum rate applicable to ordinary income grew to 39.6 percent; but capital gains remained taxed at 28 percent.15
1997: Congress reduced capital gains tax rate to 20 percent and gave taxpayers in the 15 percent bracket a capital gains tax rate of 10 percent.16
2003: The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the tax rate for “net capital gain” from 20% to 15% and to 5% for taxpayers in the lower brackets.17
2008: The 5 percent capital gain tax for taxpayers in the lower brackets will be reduced to zero.18
2011: Absent further action by Congress, the capital gains rates will revert to their pre-2003 levels
Friday, February 1, 2008
Preferential History of Capital Gains
Preferential History of Capital Gains
1921: Congress limited the tax rate applicable to capital gains held for more than two years to 12.5 percent. The highest marginal rate for ordinary income was 73 percent.7
1934: Congress changed capital gain from a lower rate to a deduction so that the longer a taxpayer held a capital asset, the less the amount of gain was subject to taxation.8
1938: Congress reverted to taxing the entire gain at a preferential rate so while the maximum marginal tax rate on income was 81.1 percent, capital gains were only taxed at 15 percent.9
1942: The highest marginal rate for ordinary income grew to 91 percent and the rate for capital gains grew to 25 percent.10
1969: Congress returned to a deduction scheme, permitting taxpayers to exclude 1/2 their net capital gains. Taxpayers in the 70% bracket could limit their capital gains tax to 35%.11
1978: Congress increased the deduction from 50 to 60 percent, allowing taxpayers in the highest tax bracket to incur a tax of 28 percent on their capital gains.12
1986: The Tax Reform Act of 1986 repealed all preferences for capital gains. The maximum tax rate applicable to ordinary income and capital gains was set at 28 percent.13
1921: Congress limited the tax rate applicable to capital gains held for more than two years to 12.5 percent. The highest marginal rate for ordinary income was 73 percent.7
1934: Congress changed capital gain from a lower rate to a deduction so that the longer a taxpayer held a capital asset, the less the amount of gain was subject to taxation.8
1938: Congress reverted to taxing the entire gain at a preferential rate so while the maximum marginal tax rate on income was 81.1 percent, capital gains were only taxed at 15 percent.9
1942: The highest marginal rate for ordinary income grew to 91 percent and the rate for capital gains grew to 25 percent.10
1969: Congress returned to a deduction scheme, permitting taxpayers to exclude 1/2 their net capital gains. Taxpayers in the 70% bracket could limit their capital gains tax to 35%.11
1978: Congress increased the deduction from 50 to 60 percent, allowing taxpayers in the highest tax bracket to incur a tax of 28 percent on their capital gains.12
1986: The Tax Reform Act of 1986 repealed all preferences for capital gains. The maximum tax rate applicable to ordinary income and capital gains was set at 28 percent.13
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