Gains Tax Cut Would Affect Most, Study Says

As Republicans and Democrats debate the merits of a capital gains tax cut, a congressional study Friday said that three-fourths of U.S. families owned an asset that could be affected by such a move.

The largest number of tax returns filed with a capital gain was by taxpayers making less than $50,000. However, 76% of capital gains were reported by the smaller group of taxpayers earning more than $100,000, the Congressional Budget Office paper showed.

The study on the ownership of capital assets and the realization of capital gains did not issue any recommendations on the often-contentious issue of cutting the tax on gains made from the sales of assets.

Republicans have put a broad-based cut high on their agenda. Critics have said such a reduction favors the wealthy at the expense of the needy.

A capital gains tax cut from the maximum rate of 28% is expected to be included in tax legislation being formulated on Capitol Hill.

The CBO paper said 76.6% of U.S. families owned assets such as stocks, bonds, businesses and homes that could potentially produce a capital gain. Excluding homes, about one-half of families owned assets that could be affected by a capital gains tax cut.

Investments that generated capital gains accounted for about 38% of the total wealth of families, homes accounted for 28% more and pensions for 19%, the CBO said.

The CBO, which conducts budget analysis for Congress, used data from a panel of returns for taxpayers over the period of 1979 to 1988, from the 1992 Survey of Consumer Finances, the 1985-based Sales of Capital Assets study and the 1993 Statistics of Income sample of income tax returns.

About one-third of taxpayers reported at least one transaction with a capital gain or loss over 10 years, the CBO said. The capital gains tax is levied when the asset is sold.

“It is not true, however, that most people who have taxable capital gains have high incomes,” the CBO said. “Nearly two-thirds of tax returns reporting capital gains are filed by people whose incomes are under $50,000 a year,” the report said.

Older people accounted for a “disproportionately larger” share of taxes paid on capital gains, the report said.