Number: RL32099
Title: Capital Income Tax Revisions and Effective Tax Rates
Authors: Jane G. Gravelle, Government and Finance Division 
Abstract: Several temporary provisions affecting the taxation of capital income were adopted in the 2001-2003 period, and further changes may be considered. The 2001 tax cuts provides a phased-in reduction of individual tax rates (typically around three percentage points), which are scheduled to sunset in 2010. The 2002 tax provides bonus depreciation for equipment, allowing 30% of investment to be deducted immediately (with the remainder depreciated under standard rules). This bonus depreciation provision was enacted as a temporary stimulus applicable only to acquisitions before 2005. The bonus depreciation share was increased to 50% by the 2003 tax cut. This provision has now expired, but it might be considered for reinstatement if fundamental tax reform is considered. Temporary tax reductions on dividends and capital gains received by individuals were also adopted in 2003. The top capital gains tax rate was reduced from 20% to 15%, and dividends were also made eligible for these lower tax rates. The 2003 tax cut also accelerated some of the planned individual rate reductions in the 2001 tax cut.
Pages: 18
Date: January 5, 2005