Member-only story
There is an immense amount of value in the U.S. stock markets. U.S. stocks are worth more than $17 trillion dollars, even more incredibly the World Bank estimates that $35 trillion is traded on U.S. stock markets every year. But despite all of the money trading hands, the U.S. government receives only $350 billion annually from capital gains taxes, meaning that on average the U.S. government only has a 1% tax rate on stock trades.
If most stocks are owned by the super wealthy and they have a 20% capital gains rate, how can the Federal Government get so little in taxes from the stock market? The stock market has been doing very well since the passage of the 2017 tax cut bill, so why hasn’t the amount of tax revenue collected by the U.S. government increased?
Who owns the stock market?
The stock market can be broken down into three buckets of ownership. The biggest bucket is tax advantaged accounts, which own 39% of the stock market. These are things like IRAs, 401(k)s, HSAs, and 529 plans. It’s possible that these stocks can be owned for years without being taxed and some accounts (like HSAs) are never taxed at all. Additionally, if you follow the rules of tax advantaged accounts the proceeds who earn are taxed as income and not capital gains.
The next bucket is stocks owned by U.S. individuals, who own 33% of the stock…
