Monday, August 20, 2012

the history of tax rates

Contrary to what many think, tax rates have generally been decreasing since the 1970s.  The top rate in the 1970s used to be 50%, declined to as low as 28%, and is now 35%.  The top long-term capital gain rates used to be 39.9% and is now 15%.  The top dividend rate used to be 70% (!) and is now down to 15%.

[Now, I see the top tax rate used to be 7% in 1913, then more than doubled to 15% in 1916, then zoomed to 67% in 1917.  It reached as high as 92% in 1952. [The capital gain tax rate  has ranged from 7% to 49.88% (in 1977). And the dividend tax rate has ranged from zero to fully taxable (100% of the ordinary income rate).]

Should you sell some securities now, before long-term capital gains rates go up? Currently, profits on long-term investments (those held more than one year) are taxed at a top rate of 15%. The Obama Administration has proposed raising the top rate back to 20% for families making over $250,000 and keeping it at 15% for everyone else. If Congress takes no action, the top rate is scheduled to return to 20% for securities held between one and five years, and 18% for those held more than five years for everyone (23.8% and 21.8% respectively including the new healthcare law surtax for high earners).


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