Alternative Methods of Taxing Realized and Unrealized Capital Gains

Capital gains receive preferential tax treatment under present U.S. legislation. Three alternative methods of taxing these are analyzed and the revenue and distributional implications of these alternatives are simulated for 1966. The methods analyzed are: (1) annual taxation of accrued capital gains; (2) full taxation of realized gains combined with periodic taxation of unrealized gains and taxation of unrealized gains held by decedents (only post-1956 gains are taxed); (3) full taxation of all realized gains combined with constructive realization at death.