Wharton: How Trump Plan to Cut Capital Gains Taxes Would Affect Taxpayers

According to PWBM, the tax brackets that set the tax rates for capital gains and dividends are determined by level of taxable income.

For purposes of the analysis, "capital gains income" refers to income from assets held for more than a year, which qualifies for preferential treatment, versus from assets held for less than a year, which is included in ordinary income and taxed at ordinary rates.

Under current law, no tax is owed on capital gains or dividend income if taxable income is below $40,000 for single filers and $80,000 for joint filers. Filers with taxable income between $40,000 ($80,000) and $441,450 ($496,600) face a 15% rate, rising to a 20% rate for income above that amount.

The White House plan eliminates the top bracket under current law. Filers with taxable income of more than $441,450 ($496,600) would pay the 15% rate on capital gains and dividend income.

PWBM modeled this scenario as a permanent rate cut set to begin in 2021. It estimated that the fiscal year budgetary changes resulting from the rate cut would reduce federal revenues by $98.6 billion over the 2021–2030 budget window.