Vanderbilt Law Review

First Page



The capital gains tax. in this country has been subject to a number of changes in holding period and long-term rate. Once again, revisions are under consideration. The Administration's tax proposals of 1963 contemplate a change in the holding period from six months to one year and a change in the long-term rate from 50 per cent of the ordinary income bracket, with a maximum tax rate of 25 percent, to a simple inclusion of 30 per cent of long-term gains. With the proposed reduction in ordinary income brackets from a range of 20-91 per cent to a range of 14-65 per cent, the long-term rate would change effectively from the current range of 10-25 per cent to a range of 4.2 - 19.5 per cent.'The present article is concerned with the economic significance of changes in holding period and long-term rate. The President's proposals are used for illustrative purposes only. The same basic analysis may be used in evaluating other specific proposals, such as the use of lower rates for holdings between six months and three years.