Capital Gains Tax Hike Would Hurt Low-Income Taxpayers, Cost Millions

For immediate release
Contact: Frank Conte
Director of Communications & IS

A capital gains tax hike proposed by the Massachusetts legislature would hurt taxpayers making less than $20,000 per year far more than it would hurt taxpayers making more than $200,000 per year. This is according to a new study by the Beacon Hill Institute at Suffolk University.

Using data from the latest IRS Statistics of Income Bulletin, BHI found that among state taxpayers reporting capital gains or losses, the tax rate would rise by .54 of a percentage point for those who make less than $20,000 per year. It would rise by only .38 of a percentage point for those who make more than $200,000 per year.

“The proposed capital gains tax increase stands on its head the usual principle that low-income taxpayers should pay a lower tax rate than high-income taxpayers,” said David Tuerck, Executive Director of the Beacon Hill Institute. “Here the tax rate increase for low-income taxpayers is 42% higher than for high-income taxpayers.”

Also, the tax hike would impact many more low-income taxpayers than high-income taxpayers. The number of state taxpayers who report capital gains or losses and who make less than $20,000 per year exceeds, by almost three to one, the number who make more than $200,000 per year.

The explanation lies partly in the broader participation by all taxpayers in the equity markets. A low-income household that sells equities in order to tide itself over a period of economic hardship will incur a substantially higher capital gains tax under the new law.

In a further analysis, the Beacon Hill Institute found that the tax hike would hurt the state economy. By discouraging workers and investors from locating in Massachusetts, the tax hike would bring about a $921-million reduction in business spending on factories, warehouse space, computers, office buildings and other structures and capital equipment. As a result, local governments would lose about $9 million in property tax revenues.

In 1994, Massachusetts reduced the tax rate on long-term capital gains. The tax rate, previously 6%, was to fall to 1% on sales of assets held for five to six years and to 0% on sales of assets held at least six years. The state House and Senate, however, want to rescind part of this tax cut, raising the rate to 2% on sales of assets held five years or more and raising the effective tax rate on all capital gains by 1.08 percentage point.

The Beacon Hill Institute at Suffolk University is a nonprofit, nonpartisan research organization that applies state-of-the-art economic methods to the analysis of current public policy issues. For a copy of the BHI FaxSheet, detailing this analysis, call (617) 573-8750. See also


Posted: 6/29/99
Revised format on 02-Jul-2003 3:12 PM

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