Maybe I can help.
In 1977, the top
capital gains tax rate was 35%. After five changes between 1978 and 2003, four that
lowered the capital gains rate, the top capital gains tax rate is currently 15%. This 57
percent reduction in the top capital gains tax rate over the last thirty years has coincided
with a fifteen-fold increase in capital gains revenue. From 1977 to 2007, capital gains
revenue increased from $8 billion to $127 billion
To put this increase in perspective, from 1977 to 2007, capital gains tax revenue
increased by a factor of 15 while overall federal revenue increased by a factor of 7
(increasing from $355 billion to $2.6 trillion). Consequently, with the downward trend in
the top capital gains tax rate, capital gains revenue has increased sharply as a percentage
of federal tax revenue—increasing from 2.3% of all federal revenue in 1977 to 4.9% of
all federal revenue in 2007.
The 1978 Capital Gains Tax Cut. In 1978, the top capital gains tax rate was reduced
from 35% to 28%. Under the lower rate, capital gains revenue increased by 51% in 3
years, increasing from $8 billion to $12 billion.
The 1981 Capital Gains Tax Cut. In 1981, the top capital gains tax rate was reduced
from 28% to 20%. Under the lower rate, capital gains revenue rose by 325% in 6 years,
increasing from $12 billion in 1981 to $53 billion in 1986.
The 1986 Capital Gains Tax Increase. In 1986, as part of the Tax Reform Act of 1986,
the top capital gains tax rate increased from 20% to 28%. Over the next five years,
capital gains tax revenue plummeted—decreasing from $53 billion in 1986 to $24 billion
in 1991, a reduction of 54%. By 1996 (the last year of the higher rate), capital gains revenue recovered and grew to $66 billion. Still, over this ten-year period of a higher top
capital gains tax rate, capital gains tax collections only grew by 25%.
The 1997 Capital Gains Tax Cut. In 1997, the top capital gains tax rate was reduced
from 28% to 20%. Under the lower tax rate, capital gains revenue surged by 92% over
four years, increasing from $66 billion to $127 billion. However, in 2001 and 2002
capital gains revenue plummeted because of the drop in stock market prices, declining by
62% from 2000 to 2002.
The 2003 Capital Gains Tax Cut. In 2003, the top capital gains tax rate was reduced
from 20% to 15%. Under the lower tax rate, capital gains revenue grew by 159% in five
years—increasing from $49 billion in 2002 to $127 billion in 2007.
