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Report: Capital gains rates could play crucial role in tax reform

In all, CRFB estimates that the current capital gains rates – which are classified as a tax expenditure – will cost around $1 trillion over a decade, though the Congressional Budget Office reports combined figures for capital gains and dividends.

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The 1986 tax reform left both capital gains and ordinary income with a top rate of 28 percent. But the top individual rate was raised just a few years later, and the rates for investment income have been significantly lower than ordinary rates for more than a decade.

President Obama’s fiscal commission proposed to again tax capital gains as the same rate as ordinary income. House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Senate Finance Committee Chairman Max BaucusMax Sieben BaucusGreen Party puts Dem seat at risk in Montana Business groups worried about Trump's China tariffs plan Farmers hit Trump on trade in new ad MORE (D-Mont.) have so far refused to take much off the table when it comes to crafting a tax reform plan.

Critics of lower capital gains rates say it can encourage tax sheltering and brush aside the idea that raising rates for investment income will stunt risk-taking.

The CFPB paper does say, however, that raising capital gains rates too high could be a revenue loser and sets 30 percent as the “revenue-maximizing” rate.

Wealthy investors are also facing an additional 3.8 percent tax on unearned income due to the president’s healthcare law.