July 31, 2025

# 26: New Glossary Entry “Capital Gains”

Capital gains represent a major black box in research on the finance-driven land rush, yet they are central to the process of ‘value creation’ that asset managers claim to pursue. For instance, when agri-focused asset managers pursue a variety of the prominent 2/20 private equity model, they hope to eventually cash out by realizing a capital gain when an agricultural asset is resold, aiming at getting a 20 percent share of the profit that is being made when the asset is resold. A now globalized low-capital gains regime lies at the center of the redistributive dynamics of asset manager capitalism more generally, and thus we are lucky to host one of the key thinkers on these themes, political economist Benjamin Braun, in our guest writers section.

***

Capital gains represent the increase in market value of assets over time. They encompass appreciation in stocks, bonds, real estate, private businesses, and other financial instruments. When it comes to the drivers of income and wealth inequality, capital gains are a massive factor. In the United States, they have averaged 20 percent of national income over the past two decades. From a political economy perspective, two implications stand out. First, income inequality measures that exclude capital gains provide an incomplete picture. Second, the convention to tax only realized capital gains reduces the progressivity of taxation systems.

U.S.A. dollar banknotes photo. Source: Sharon McCutcheon 2018 on Unsplash.

Historical Evolution and Current Volume

From 1954-2021, $116 trillion in total capital gains were accrued in the United States. The post-1980 period has witnessed particularly dramatic growth in capital gains relative to other income sources. Pure capital gains (excluding retained earnings already counted in national income) averaged 10 percent of national income in the post-1980 period, compared to 4 percent for retained earnings [1]. The drivers of this trend comprise declining interest rates, tax rules geared towards channeling household savings into houses (e.g., via mortgage interest deductions) and equities (e.g., via 401(k) retirement plans), as well as the growth of assets under management by institutional capital pools such as pension funds and sovereign wealth funds.

The best available data on the distribution of capital gains comes from the US Internal Revenue Service (IRS). A recent study of this data revealed that capital gains are highly concentrated, with 75.7 percent flowing to the richest 10 percent and 45.3 percent to the top 1 percent [1]. Capital gains substantially increase overall income inequality, raising the top 1 percent share of total income to 21 percent, compared to 18 percent without capital gains. This increase is driven mainly by capital gains on public and private equity holdings (including agricultural holdings), which are highly concentrated, whereas housing and pension assets (and therefore capital gains) are more equally distributed.

Taxation of Capital Gains

In the US, long-term capital gains are currently taxed at 0 percent for income under $89,250 (for married couples), 15 percent for income between $89,250 and $555,850, and 20 percent above that level. In Europe, capital gains tax rates vary widely. Rates range from 0 percent in Slovenia, Slovakia, Malta, Luxembourg, Czech Republic, and Belgium, to 42 percent in Denmark[2]. Aotearoa New Zealand, a key geography for this website, does not have a comprehensive capital gains regime and provides wide-ranging exemptions for farmland. However, capital gains become taxable only upon realization. In years when wealth owners sell assets, this can trigger large tax liabilities: In 2014, for example, realized capital gains represented 60 percent of total adjusted gross income for the 400 highest-income Americans [3].

The richest households tend to hold assets for very long periods of time—often across generations. To access cash in case of need, these households can borrow against their asset holdings. This results in effective tax rates on capital gains amounting to only 3 percent for nominal gains; and in capital gains unrealized at death completely escaping income taxation. Accounting for capital gains thus reduces the progressivity of the tax system. One way to tax capital gains are wealth taxes, which many countries have introduced (and sometimes phased out again) [4]. An alternative is to tax unrealized capital gains directly. In her 2024 presidential campaign, Kamala Harris had embraced a plan to impose such a tax on individuals with at least $100 million in wealth who did not already pay at least a 25 percent tax rate on their income [5]. While administrative challenges certainly exist, the primary obstacles are political—the wealthy steadfastly oppose wealth taxes.

 
[1] Campbell C, Robbins J A and Wylde S (2025) The Distribution of Capital Gains in the United States. Washington Center for Equitable Growth.
[2] Mengden A (2025) Capital Gains Tax Rates in Europe, 2025. Tax Foundation Europe.
[3] Scheuer F and Slemrod J (2021) Taxing Our Wealth. Journal of Economic Perspectives 35(1): 216. DOI: https://doi.org/10.1257/jep.35.1.207.
[4] Limberg J and Seelkopf L (2022) The Historical Origins of Wealth Taxation. Journal of European Public Policy 29(5): 670-688. DOI: https://doi.org/10.1080/13501763.2021.1992486
[5] Primack D (2024) The reality of Kamala Harris’ plan to tax unrealized capital gains. Axios. Availabe at: https://www.axios.com/2024/08/23/kamala-harris-unrealized-capital-gains-tax (last accessed 03 July 2025)