tax policy center
Tax Topics

Tax Topics

2009 Tax Stimulus
2012 Election Tax Plans
2015 Budget
Alternative Minimum Tax (AMT)
American Jobs Act of 2011
Brief Description of the Model 2013
Camp Tax Reform Plan
Current-Law Distribution of Taxes
Deficit Reduction Proposals
Distribution of the 2001 - 2008 Tax Cuts
Earned Income Tax Credit
Economic Stimulus
Education Tax Incentives
Estate and Gift Taxes
Expiration of the Bush Tax Cuts
Explanation of Income Measures 2013
Federal Budget
Fiscal Cliff
Fiscal Crisis
Flow-Through-Enterprises
Guide to TPC Tables
Health Insurance Tax Incentives
Homeownership
How to Interpret Distribution Tables 2013
Marriage Penalties
Model FAQ 2013
Model Related Resources and FAQs
Payroll Taxes
Presidential Transition - 2009
Recent Tax Stimulus Legislation
Retirement Saving
Tax Encyclopedia Index
Tax Expenditures
Tax Reform Proposals
Value-Added Tax (VAT)
Who Doesn't Pay Federal Taxes?
Working Families

E-mail Newsletter

Enter your e-mail address to receive periodic updates on TPC publications and events.

> newsletter archive

tax topics
 

2013-Budget-header

 

Allow resumption of 20 percent rate on long-term capital gains for high-income taxpayers

In 2011 and 2012, long-term capital gains (gains on assets held at least a year) face a maximum tax rate of 15 percent. Taxpayers with regular tax rates of 15 percent or less pay no tax on that income. Under current law, tax rates on long-term gains are scheduled to revert in 2013 to their pre-2003 levels of 10 percent for taxpayers in the 15 percent bracket and below and 20 percent for taxpayers in higher tax brackets.* The president would allow the rate to rise to 20 percent starting in 2013, but only for high-income taxpayers. The proposal defines high-income taxpayers as those in the top two tax brackets: couples with 2013 taxable income above $241,900 (half as much for couples filing separately), single filers with income over $199,350, and heads of household with income over $222,750, with all values indexed for inflation. Relative to current policy, this provision would increase revenue by about $36 billion over the 2013-2022 period.

The higher rate on capital gains could induce taxpayers to hold on to assets with accrued gains and therefore realize fewer taxable gains. If people expect the president’s budget to go into effect, they may also change the timing of gains realizations. Anticipation of higher taxation of long-term gains after 2012 would lead affected taxpayers to realize more gains in 2011 and 2012 and fewer in 2013 and subsequent years.

Allow the tax rate on qualified dividends to return to ordinary rates for high-income taxpayers

In 2011 and 2012, qualified dividends face a maximum tax rate of 15 percent. Taxpayers with regular tax rates of 15 percent or less pay no tax on that income. Under current law, qualified dividends will be taxed at regular tax rates in 2013. The president would allow that to happen for taxpayers in the top two tax brackets—couples with 2013 taxable income above $241,900 (half as much for couple filing separately), single filers with income over $199,250, and heads of household with income over $222,750, with all values indexed for inflation—but would maintain the current 15 percent and 0 percent rate schedule at lower incomes. Relative to current policy, this provision would increase revenue by more than $200 billion through 2022.

The higher rates on capital gains and dividends would increase marginal tax rates on capital income for high-income taxpayers and could reduce private saving. It also might cause corporations to accelerate some dividend payments forward into 2012 to take advantage of the current lower rate.

Additional Resources

Tax Policy Briefing Book: Key Elements of the U.S. Tax System: Capital Gains and Dividends.


*Without congressional action, lower rates (18 percent and 8 percent, respectively) would apply to assets held for more than five years. The budget proposal would repeal the lower rates on long-held assets.