One of the biggest capital taxation changes in history happened in 2003, when George W. Bush reduced the top dividend tax rate from 38.6 percent to 15 percent.
In a new study by a UC Berkeley economist (pdf and slides), he found there was no difference in either investment or adjusted net investment. There was also no difference when it came to employee compensation. The firms that got a massive capital tax cut did not make any different choices about things that boosted the real economy.
The one thing that did increase was the disgorgement of cash to shareholders of C-corporations. Cutting dividend taxes led to an increase in dividends and share buybacks.
In 2003 President Bush and Congress agreed to lower tax rates on capital gains and dividends, and to phase out the estate tax — aka the inheritance tax — which the GOP (and the Heritage Foundation) calls the “death tax” (although, dead people don't pay taxes).
Prior to the Bush tax cuts, the tax rate on capital gains was 20 percent and dividends were taxed at the same rate as wage and salary income (according to one's adjusted gross income and marginal tax rates). The Bush tax cuts reduced both of these rates to 15 percent (lower than they had been since the 1930s.)
The "fiscal cliff deal" in 2010 (after approving a two year extension on the Bush tax cuts) allowed the tax rate on capital gains to rise back to 20 percent beginning in 2013 — and set the rate on dividends at that rate as well. However, Obamacare also began levying a 3.8 percent surtax on both — so their full rate is currently 23.8 percent (which is still much lower than the top marginal rate on regular wages, which is 39.6%).
The deal between President Obama and Congress also brought back the inheritance tax at 35 percent with a $5 million exemption (which was indexed for inflation), and then increased this tax rate to 40 percent. For 2015, the federal estate tax exemption is now $5.43 million. A husband and wife each get their own exemption, so a couple will now be able to give away $10.86 million tax-free (assuming they haven’t made any prior lifetime gifts).
Totally separate from the "lifetime gift exemption" amount is the "annual gift tax exclusion" amount — which is $14,000. You can give away $14,000 to as many individuals as you’d like. A husband and wife can each make $14,000 gifts. So a couple could make $14,000 gifts to each of their four grandchildren, for a total of $112,000. The annual exclusion for gifts don’t count towards the lifetime gift exemption. (More details at Forbes)
In his State of Union address tonight, President Obama is expected to propose raising the capital gains tax from 23.8% to 28% (It used to be 28% under Bill Clinton, before he reduced the rate to 20% — before Bush reduced it again to 15%). As Warren Buffett once said, "My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice."
But as we all know, a GOP Congress will NEVER go for ANY tax increases on the rich — even though Gallup polling finds that 67 percent of likely voters are dissatisfied with income and wealth distribution in the United States.
As it is now, according to the charity Oxfam (in their most recent study released on Monday), the richest 1 percent are likely to control more than half of the globe’s total wealth by next year. The 80 wealthiest people in the world altogether own $1.9 trillion, the report found — nearly the same amount shared by the 3.5 billion people who occupy the bottom half of the world’s income scale.