The current tax treatment of long-term capital gains—the profits from selling assets, such as stocks, businesses, and real estate, that have been held for at least a year— faces efficiency and equity challenges. For example, some wealthy taxpayers can escape paying capital gains taxes altogether by passing on assets to their heirs, because they are not taxed until the assets are sold.

In recent years, with mounting federal deficits, policymakers have put forward various proposals to raise the tax rate on long-term capital gains for high-income taxpayers. Although members of the next Congress and new administration may propose to reduce the tax rate, others may look to an increase as a way to offset the cost of extending expiring provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) or address historical federal debt levels. This brief examines the feasibility of proposals to increase capital gains taxes on high-income households, offers considerations for creating new proposals, and explores potential implementation challenges.

Current Law on Long-Term Capital Gains

Under current US tax law, long-term capital gains are taxed at a rate of 23.8 percent for high-income individuals, while short-term capital gains and ordinary income are taxed at a maximum of 40.8 percent.

Recent proposals have aimed to increase the tax rate on long-term capital gains for high-income individuals. As part of the 2025 fiscal year budget, for example, President Biden proposed raising the capital gains tax rate to 39.6 percent for individuals with incomes over $1 million, and taxing unrealized gains at death for estates exceeding $5 million ($10 million for joint filers).