Inflation and the Excess Taxation of Capital Gains on Corporate Stock

Martin Feldstein and Joel Slemrod

No 234, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The present study shows that in 1973 individuals paid nearly $500 million of extra tax on corporate stock capital gains because of the distorting effect of inflation. A detailed analysis shows that the distortion was greatest for middle income sellers of corporate stock. In 1973, individuals paid capital gains tax on more than $4.5 billion of nominal capital gains on corporate stock. If the costs of these shares are adjusted for the increases in the consumer price level since they were purchased, the $4.5 billion nominal gain becomes a real capital loss of nearly $1 billion. As a result of this incorrect measurement of capital gains, individuals with similar real capital gains were subject to very different total tax liabilities. These findings are based on a new body of official tax return data on individual sales of corporate stock.

Date: 1978-02
Note: PE
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Published as Feldstein, Martin and Slemrod, Joel. "Inflation and the Excess Taxation of Capital Gains on Corporate Stock." National Tax Journal, Vol. XXXI, No.2, ( June 1978), pp. 107-118.
Published as Inflation and the Excess Taxation of Capital Gains on Corporate Stock , Martin Feldstein, Joel Slemrod. in Inflation, Tax Rules, and Capital Formation , Feldstein. 1983

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