Capital Gains Dropped 40% in 2008 as Incomes Fell, IRS Says
By Ryan J. Donmoyer
Bloomberg
March 2 (Bloomberg) -- Americans’ income from capital gains fell 40 percent in 2008 after the stock market crash, while their overall earnings fell 3.7 percent, the IRS said.
The Internal Revenue Service issued preliminary data yesterday showing Americans reported $447 billion from capital gains in 2008, down from $749 billion in 2007, the last year of an economic expansion.
The IRS data marked the first comprehensive look at the Great Recession’s toll on U.S. incomes. Americans in 2008 reported the first overall income drop since 2002, while earnings from taxable unemployment compensation rose to $43.9 billion, up by 7.6 percent from 2007, the data show. Americans paid $1 trillion in income taxes, down 6.2 percent from a year earlier.
“This is a stark and fresh look at the ramifications of the stock market crash on the fiscal situation in the federal government and states,” said Joel Slemrod, an economics professor who runs a tax-policy research institute at the University of Michigan at Ann Arbor.
The data show that 11.2 million tax returns out of 142.4 million filed last year reported $447 billion in income from capital gains. Most of that income, $363.3 billion, was earned by 964,160 households reporting overall income of $250,000 or more.
Capital gains distributions from mutual funds decreased by 74.6 percent to $22 billion, the data showed. The Standard & Poor’s 500 Index fell 38.5 percent in 2008.
Sept. 11 Attacks
The 40 percent drop in capital gains compares with a 44.5 percent drop in capital gains in 2001, the first year of the previous recession and a year in which stock markets were roiled by the Sept. 11 terror attacks. The following year in 2002, capital gains income dropped a further 24.5 percent.
The 2008 data contrast with a Feb. 18 IRS report that said income for the 400 highest-earning U.S. households rose by 31 percent in 2007. They earned a total $138 billion that year, about two-thirds of which came from capital gains.
The IRS said just under 4.4 million households earned more than $200,000 in 2008, approximately the level of income that would be subject to tax increases proposed by President Barack Obama.
Obama has proposed increases in income and Medicare taxes that would put the top effective marginal federal rate at between 43 and 44 percent in 2011, up from a top 36.35 percent rate now, according to an analysis by Gerald Prante, an economist at the Tax Foundation, a Washington-based research group that advocates lower taxes.
Obama’s proposals would affect individuals earning more than $200,000 and married couples filing jointly who earn more than $250,000. The IRS data doesn’t distinguish between those classifications.
To contact the reporter on this story: Ryan Donmoyer in Washington at rdonmoyer@bloomberg.net
Source: Bloomberg
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