IRS Data on the Capital Gains Tax Cut in Each State: Data Show Benefits Sharply Skewed To High-Income Filers

PDF of this report (2pp.)

By Joel Friedman and Katherine Richards

November 7, 2005

During consideration of the reconciliation tax-cut bill in coming weeks, Congress is expected to debate whether to extend a variety of tax cuts scheduled to expire in 2005 or subsequent years. Much attention is likely to be focused on whether to extend the reduction in the capital gains tax rate that was enacted in 2003 and that is set to expire in 2008. The table on the following page is based on Internal Revenue Service data for 2003; it shows the distribution in each state of the benefits from the capital gains tax cut. It thus provides a sense of who will benefit from extending this tax cut.

The table shows the percentage of tax returns filed in each state that reported adjusted gross income of less than $50,000, and the percentage in each state with income above $200,000. It also shows the proportion of the total tax savings from the capital gains rate cut that was received by each of these two income groups. The IRS calculated the savings based on the net capital gains reported in each state.

For example, as shown in the first row of the table, 70.7 percent of all filers in the nation had annual income below $50,000 in 2003; but this group received only 3.2 percent of the benefits from the capital gains tax cut that year. In contrast, those with incomes above $200,000 represented 2.0 percent of all filers, but received 80.5 percent of the capital gains tax-cut benefits. (The remaining 16.3 percent of the tax-benefit went to filers with incomes between $50,000 and $200,000.) The table provides comparable figures for each state.

DISTRIBUTION OF CAPITAL GAINS TAX CUT BENEFITS IN 2003, BY STATE

 

Taxfilers with Income
|Under $50,000

Taxfilers with Income
Over $200,000

 

Percent of
Returns

Percent of|
Capital Gains
Tax Cut

Percent of
Returns

Percent of
Capital Gains
Tax Cut

United States

70.7%

3.2%

2.0%

80.5%

Alabama

75.4%

5.8%

1.3%

71.8%

Alaska

69.3%

2.2%

1.4%

70.9%

Arizona

71.8%

3.9%

1.7%

74.9%

Arkansas

77.9%

7.5%

1.1%

69.6%

California

68.2%

2.1%

2.6%

84.3%

Colorado

67.2%

3.2%

2.2%

79.8%

Connecticut

61.6%

0.9%

3.9%

88.6%

Delaware

67.5%

1.1%

1.9%

80.4%

Washington, DC

69.9%

1.5%

3.6%

90.5%

Florida

75.0%

2.1%

1.9%

82.8%

Georgia

71.8%

3.8%

1.9%

79.3%

Hawaii

71.4%

3.1%

1.5%

71.5%

Idaho

75.0%

13.8%

1.2%

59.1%

Illinois

67.9%

2.8%

2.3%

83.8%

Indiana

70.9%

5.6%

1.3%

72.6%

Iowa

71.9%

10.4%

1.2%

57.3%

Kansas

71.4%

5.5%

1.5%

74.7%

Kentucky

74.6%

9.6%

1.2%

62.5%

Louisiana

76.7%

4.2%

1.2%

70.8%

Maine

73.9%

4.8%

1.3%

64.4%

Maryland

63.2%

2.2%

2.6%

82.1%

Massachusetts

64.0%

1.1%

3.1%

85.7%

Michigan

68.1%

2.8%

1.6%

75.2%

Minnesota

66.3%

4.6%

2.1%

73.8%

Mississippi

79.6%

10.4%

1.0%

66.0%

Missouri

72.7%

8.2%

1.4%

67.3%

Montana

78.1%

11.8%

1.1%

57.3%

Nebraska

72.9%

10.8%

1.3%

65.3%

Nevada

70.7%

3.3%

1.9%

86.3%

New Hampshire

65.3%

2.0%

2.0%

75.3%

New Jersey

62.7%

*

3.5%

86.2%

New Mexico

77.0%

5.9%

1.1%

65.6%

New York

69.4%

2.0%

2.6%

90.2%

North Carolina

73.2%

3.5%

1.6%

73.5%

North Dakota

75.0%

16.3%

1.1%

52.0%

Ohio

73.1%

3.2%

1.3%

72.9%

Oklahoma

76.3%

7.9%

1.2%

72.8%

Oregon

71.4%

7.3%

1.5%

66.9%

Pennsylvania

70.7%

1.9%

1.8%

80.3%

Rhode Island

68.7%

1.5%

1.9%

73.9%

South Carolina

75.5%

4.7%

1.3%

69.8%

South Dakota

76.1%

17.3%

1.2%

50.2%

Tennessee

75.0%

4.6%

1.5%

77.8%

Texas

73.3%

3.1%

1.8%

84.3%

Utah

71.9%

5.7%

1.4%

74.1%

Vermont

72.4%

7.1%

1.4%

58.7%

Virginia

65.6%

2.9%

2.4%

78.7%

Washington

66.7%

3.7%

2.0%

76.3%

West Virginia

76.8%

7.9%

0.8%

58.3%

Wisconsin

68.7%

7.7%

1.5%

64.6%

Wyoming

71.3%

4.4%

1.4%

82.0%

*Net capital gains were negative for this income group (i.e., losses exceeded gains)
Source: Internal Revenue Service, Statistics of Income.

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