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Assessing the Effects of a Dividend and Capital Gains Tax Increase

Assessing the Effects of a Dividend and Capital Gains Tax Increase

by Ignacio González, Juan Montecino, and Vasudeva Ramaswamy

This brief provides a new analysis of the macroeconomic effects of raising taxes on dividend income and capital gains. Increasing dividend income and capital gains taxes from 20% to 39.6% for households earning over $1 million would raise government revenue by about 5% and GDP by about 1% in the long term. The proposed tax increase would increase income for lower- and middle-income households, while households at the top would see a significant decline in income. Because dividend income and capital gains are enjoyed largely by the wealthiest members of society, increasing taxes on income from these sources can play a crucial role in mitigating income and wealth inequality.