Rethinking How We Score Capital Gains Tax Reform

25 Pages Posted: 27 Jan 2021 Last revised: 1 Jul 2023

See all articles by Natasha Sarin

Natasha Sarin

Yale University Law School and Yale School of Management

Larry Summers

Harvard University

Owen Zidar

Princeton University

Eric Zwick

University of Chicago - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 2021


We argue the revenue potential from increasing tax rates on capital gains may be substantially greater than previously understood. First, many prior studies focus primarily on short-run taxpayer responses, and so miss revenue from gains that are deferred when rates change. Second, the composition of capital gains has shifted in recent years, such that the share of gains that are highly elastic to the tax rate has likely declined. Third, focusing on capital gains tax collection may understate fiscal spillovers from decreasing the preferential tax treatment for capital gains. Fourth, additional base-broadening reforms, like eliminating stepped-up basis and making charitable giving a realization event, will decrease the elasticity of the tax base to rate changes. Overall, we do not think the prevailing assumption of many in the scorekeeping community—that raising rates to top ordinary income levels would raise little revenue—is warranted. A crude calculation illustrates that raising capital gains rates to ordinary income levels could raise $1 trillion more revenue over a decade than other estimates suggest. Given the magnitudes at stake, scorekeeping procedures employed in evaluating capital gains should be made more transparent and be the subject of external professional debate and review.

Suggested Citation

Sarin, Natasha and Summers, Larry and Zidar, Owen and Zwick, Eric, Rethinking How We Score Capital Gains Tax Reform (January 2021). NBER Working Paper No. w28362, Available at SSRN:

Natasha Sarin (Contact Author)

Yale University Law School and Yale School of Management ( email )

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Larry Summers

Harvard University ( email )

Owen Zidar

Princeton University ( email )

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Princeton, NJ 08544-0708
United States

Eric Zwick

University of Chicago - Finance ( email )

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Chicago, IL 60637
United States

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