A new report from Citizens for Tax Justice shows that the majority of the Bush tax cuts for capital gains and dividends go to the richest one percent of taxpayers in every single state. The report also explains that these tax cuts do not pay for themselves, despite arguments to the contrary.

Presidential candidates, reporters and pundits have lately perpetuated two myths about tax cuts for capital gains and dividends. The first myth is that the middle class benefits from these tax cuts for investment income. The second myth is that these tax cuts, particularly the tax cut for capital gains, have caused federal revenue to actually increase.

The first of these myths is easily refuted by looking at the distribution of the Bush capital gains and dividends tax cuts both nationally and on a state-specific basis. The state-by-state figures in the report show that in every single state, the benefits from the capital gains and dividends tax breaks are concentrated among the richest one percent. The average tax cut for these fortunate households runs in the tens of thousands of dollars, while the average tax cut for the poorest 60 percent is perhaps enough to buy a single meal, and in many states is even less.

Senator John McCain and other supporters of the Bush tax policies imply that these tax cuts are more important to the middle class than these figures would indicate. They argue that a large number of Americans have investment income, but they fail to mention that most of that is not taxable investment income.

The second myth is also easily refuted, by examining the actual trajectory of revenue from capital gains taxes as a percentage of GDP. The report shows that there is no evidence that the amount of revenues collected by the tax actually increases when the rate is cut.

CTJ's state-by-state capital gains data helped state nonprofits to inform policy debates in a number of states this week. The Oregon Center for Public Policy pointed out that the annual Bush capital gains/dividend tax cut for the very wealthiest 1 percent of Oregonians exceeds the cost of recently revoked federal timber payments for rural Oregon counties. Ocean State Action used the opportunity to highlight the inequity of Rhode Island's state-level tax breaks for capital gains, and the Iowa Policy Project, New Jersey Policy Perspectives and Policy Matters Ohio also highlighted the report's findings. If you're interested in using this data to inform your state's policy debate, drop us a line.

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