Policy Documents

Tax Cut Permanency Report #1: The Capital Gains Tax

Raymond J. Keating –
February 26, 2005

In 2001 and 2003, tax relief measures were approved by Congress and signed into law by President George W. Bush. These tax cuts helped small business, entrepreneurship, investment, economic growth and job creation.

However, these tax cuts were passed as temporary measures. Of course, tax cuts with expiration dates have the potential to go sour. That is, they pass the expiration date and turn into tax increases. Such looming tax threats create uncertainty in the marketplace and restrain the potential positive impact that tax relief can have on the economy.

The 2003 tax cut included a reduction in the top capital gains tax rate paid by individuals from 20% to 15%. The lower rate fell from 10% to 5%, and is scheduled to decline to 0% in 2008. This followed a reduction in the top capital gains tax rate from 28% to 20% in 1997. If current law is not changed, the capital gains tax rate will increase from 15% to 20%, and the lower rate from