Double Whammy for U.S. Investors: Federal and State Capital Gains Tax Rates High

During the last 50 years, the U.S. Congress has acted several times to increase or decrease individual and corporate capital gains tax rates and to raise or lower the holding period requirement for capital gains treatment. The top marginal federal statutory rate on long-term individual capital gains has ranged from as high as 35 percent to the current low of 20 percent. Corporate capital gains tax rates have ranged from 25 percent to the current-law 35 percent. Holding period requirements have varied from six months to as long as 18 months; currently the holding period is one year. (In 2001, the top individual capital gains federal rate drops from 20 percent to 18 percent for assets held five years or more.1) However, even with the individual capital gains tax reductions included in the 1997 Taxpayer Relief Act, the tax burden remains high on individual and corporate capital gains, especially when the burden of state taxes is included.

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