The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates

This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at state level and then develops framework for determining revenue-maximizing rates federal level. We find that elasticity revenues with respect tax rate over 10-year period is −0.5 −0.3, indicating cuts do not pay themselves 5 percentage point increase would yield $18 $30 billion in annual revenue. Our long-run estimates 38 47 percent. (JEL E62, H25, H71)