The History of Capital Gains Taxes in the United States

What are Capital Gains Taxes:
The money you made from the time of acquisition or purchase to the time of sale of a valuable asset is known as your capital gains. This profit has a tax levied on it, which is called a capital gain tax. Some common examples of capital include large investments such as real estate, stocks, bonds, or mutual funds. The capital gains tax rates strongly affect the economy. Any increase could negatively affect millions, including middle class families with some stock or entrepreneurs trying to open their own small business. 

The Beginning:
Capital gains always remained below 7% from 1913 to 1921. It was not until the Revenue Act of 1921 when the tax made its first upward climb to 12.5%. The tax then waxed and waned, hiking up with the 1969 and 1976 tax reform acts, only to be reduced in 1978 by congress. More recently, the Taxpayer Relief Act of 1997 again, lowered the capital gains rate. Currently, the rate for most taxpayers is 15% on long-term capital gains (i.e. property held for longer than 12 months) and ranging from 10% to 35% on short-term capital gains (i.e. property held for less than 12 months). Individuals in the 10% and 15% tax brackets pay 0% on long-term capital gains.

The Rise and Fall:
The opposition to cutting capital gains taxes is usually rooted in the belief that the tax cuts benefit only the wealthy. However, this is only partly true. While most wealthy people own stocks and other capital, there are plenty of struggling businesses and middle class families depending on capital just as much. In reality, the cutting of capital gains taxes has proven to benefit the economy when tried in the past on multiple occasions. Historically, when capital gains taxes were raised it tended to harm the US economy more than help it. 

Election ‘08 and Capital Gain Taxes:
Controversy looms over the 2008 Presidential election with capital gains taxes in the spotlight. Sen. Barack Obama revealed his plan to raise capital gains taxes in order to make the distribution of wealth fairer. He cited 50 individuals benefiting from the tax sharing a $29 billion income between them. However, many experts strongly oppose Obama’s plan saying an increase will hurt the economy possibly knocking off almost 2% of Gross Domestic Product. 

Unfair Tax:
When it comes to the legitimacy of capital gains taxes and increases, there are solid arguments from both sides. Those who support low capital gains tax rates claim that any increase would discourage investing and hurt the economy. However, groups that support an increase are quick to deem low rates as unfair. They claim that by taxing capital gains at a lower rate then income taxes is essential a tax benefit for just the wealthy. “Some people who are richer than Croesus are paying 15 cents in federal income taxes on the marginal dollar, while you may be paying 25 or 35 cents,” claims economist Alan Blinder says on his blog, EconomistsView.