December 6, 2005
Majority of Seniors Benefit from Reduced Capital Gains and Dividend Tax Rates
For immediate release
Media contact: William Ahern (202) 464-5101.
The percentage of middle-income Americans who depend on dividend and capital gains continues to grow, especially among the elderly, according to a new Fiscal Fact by Tax Foundation President Scott A. Hodge (see http://www.taxfoundation.org/publications/show/1236.html)
“Because of the graying of America and the trend toward stock ownership by middle-income people,” said Hodge, “recent cuts in the tax rates on capital gains and dividends have provided welcome relief to millions of middle-income elderly.”
The temporary 15-percent tax rate on capital gains and dividends passed in 2003 benefits millions of middle-income people, according to the Foundation’s analysis of IRS data. Those taxpayers will face a tax hike when it expires at the end of 2008 unless Congress acts to extend this favorable rate or make it permanent.
Hodge estimates that more than 80 percent of taxpayers who claim dividend income earned less than $100,000 in 2004. The percentage is similar for capital gains income, 76 percent.
Older Americans are even more reliant on dividend income than on capital gains. Among taxpayers aged 65 and 74, a remarkable 51.3 percent claim dividend income. Among taxpayers above age 75, dividend income is claimed by 50.4 percent.
These figures represent a universe of taxpayers in which the leading edge of the “baby boom” generation has just reached its 60th birthday. As this generation continues to age, the demographic balance of capital gains and dividend earners will undoubtedly shift even more dramatically up the age scale.
Importance for Political Debate
The most frequently criticized provision of the Bush tax cuts is this cut in the rates on dividends and capital gains because the bulk of these income streams flow to high-income people. To the assertion that the President and Congress gave wealthy people too much tax relief, the Administration has generally responded that tax cuts on capital income pay back a generous premium to the economy at large in the form of capital formation and higher wages. The steady and strong economic growth that has occurred since those tax cuts in 2003 is cited as empirical proof.
This report from the Tax Foundation provides a different type of support for the rate cuts, arguing that the smaller tax benefits of millions of middle-income elderly should not be ignored in the debate.
The Tax Foundation has monitored tax policy at the federal, state and local levels since 1937. Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonprofit, nonpartisan 501(c)(3) organization.
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