Raise the Tax Rates on Long-Term Capital Gains and Qualified Dividends by 2 Percentage Points

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
Change in Revenues 1.4 6.4 7.1 7.6 8.1 8.5 8.4 8.8 9.3 9.6 30.6 75.2

Data source: Staff of the Joint Committee on Taxation.
This option would take effect in January 2021.

When people sell an asset for more than the price at which they obtained it, they generally realize a capital gain that is subject to taxation. Under current law, long-term capital gains (those realized on assets held for more than a year) and qualified dividends (which includes most dividends) are usually taxed at lower rates than other sources of income, such as wages and interest. The statutory rate on most long-term capital gains and qualified dividends is 0 percent, 15 percent, or 20 percent, depending on a taxpayer’s filing status and taxable income.

This option would raise the statutory tax rates on long-term capital gains and qualified dividends by 2 percentage points. The new rates would then be 2 percent, 17 percent, and 22 percent. It would not change other provisions of the tax code that affect taxes on capital gains and dividends.