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Is Income From Capital Subject To Individual Income Taxation?

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  • Eugeive Steuerle

    (U.S. Department of the Treasury)

Abstract

Although real capital income from certain sources may be subject to tax at very high rates in an inflationary economy, this article suggests that individuals avoid individual income taxation on most capital income by saving in tax- preferred assets, and by not realizing or not reporting capital income. It is found that the average marginal rate of federal individual income tax on all capital income is about 9%. Additionally, the net amount of income from capital reported on individual returns is less than one-third of net income from capital (excluding inflationary returns) in the economy. For nominal capital income, both the inclusion rate and the average marginal rate are much lower.

Suggested Citation

  • Eugeive Steuerle, 1982. "Is Income From Capital Subject To Individual Income Taxation?," Public Finance Review, , vol. 10(3), pages 283-303, July.
    • Handle: RePEc:sae:pubfin:v:10:y:1982:i:3:p:283-303
    DOI: 10.1177/109114218201000301
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    References listed on IDEAS

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    1. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70(3), pages 215-215.
    2. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
    3. Martin Feldstein & Lawrence Summers, 1983. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 116-152, National Bureau of Economic Research, Inc.
    4. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
    5. Peter M. Mieszkowski, 1967. "On the Theory of Tax Incidence," Journal of Political Economy, University of Chicago Press, vol. 75(3), pages 250-250.
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    Cited by:

    1. James Tobin, 1987. "Inventories, Investment, Inflation and Taxes," Cowles Foundation Discussion Papers 849, Cowles Foundation for Research in Economics, Yale University.
    2. Eugene Steuerle, 1984. "Realized Income and Wealth for Owners of Closely Held Farms and Businesses: A Comparison," Public Finance Review, , vol. 12(4), pages 407-424, October.
    3. Harvey Galper & Eric Toder, 1984. "Transfer Elements in the Taxation of Income from Capital," NBER Chapters, in: Economic Transfers in the United States, pages 87-138, National Bureau of Economic Research, Inc.
    4. David F. Bradford, 1981. "Issues in the Design of Saving and Investment Incentives," NBER Working Papers 0637, National Bureau of Economic Research, Inc.

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