Capital Gains Dropped 40% in 2008 as Incomes Fell, IRS Says

Bloomberg reports:

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.

Yet some people think raising capital gains taxes even higher is good public policy.