Congress is considering extending for two more years existing legislation which provides that dividends and capital gains be taxed at preferential rates. Using 2002 Internal Revenue Service tax return data, this AARP Public Policy Institute Data Digest considers who would benefit from this proposal and examines the distribution of both dividend and capital gains income.
After determining who benefits the most from the possible extension of the preferential tax rate on dividends and capital gains, it briefly examines the effect of the tax provisions on the federal budget deficit. It finds that the revenue losses would result in even larger deficits when the costs of added debt service for increased deficits are taken into account.
Although about one-third of the people aged 50 and older would benefit from the dividend provision, and about one-quarter from the capital gains provision, nearly half of the dividend tax benefits and nearly two-thirds of the capital gains benefits would go to less than 3 percent of age 50+ filers — those with incomes exceeding $100,000. (6 pages)