Taxing Capital Income

Legislated changes affecting capital income have dramatically reduced the federal income tax base and revenues over the past 25 years. A significant share of capital income is never subject to tax. The massive “leakage” between the generation of economic income and the reporting of income on tax forms calls for careful analysis of (a) which forms of income do not show up on tax forms, (b) where in the income distribution that divergence is occurring, (c) how base erosion is changing over time, and (d) the revenue and distributional effects of broadening the capital income tax base.