Was the 2003 Capital Gains Tax Cut “Fair”?
For nearly three decades, the so-called tax fairness issue has dominated the capital gains tax debate. Who are the winners and who are the losers from a capital gains tax cut? Every new analysis seems to provide a different answer to that question. For example, when President Bush proposed the reduction in the capital gains rate in 2003, his critics argued that about 60 percent of the tax break would go to the richest 1 percent of Americans. But if we start by looking at the impact of the investment tax cut as a whole, we find that the share of taxes paid by the richest 1 percent and 5 percent of Americans actually increased after the tax cuts were enacted [see Table VI]. In 2005, the percentage of income taxes (which includes dividends and capital gains) paid by the richest 1 percent hit an all-time high of 39 percent. The top 5 percent paid nearly 60 percent of the income tax, close to an all-time record. Thus, the 2003 tax cuts continued the trend of the 1990s of increasing the shar
