Capital gains tax is something many of us dream of being required to pay. In our minds, it denotes the sale of something hefty, like a yacht or nice hunk of real estate. We don't know what we'd be letting ourselves in for, however, which is the equivalent of paying a third party -- who simply stood by while the sale was transacted - a stout commission. The tax rate on long-term gains (some valuable held for more than one year) was reduced in 2003 to 15%, or 5% for individuals in the lowest two income-tax brackets.
The reduced rate on designated dividends and capital gains, originally due to expire in 2008, was extended through 2010 as a result of the Tax Increase Prevention and Reconciliation Act signed into law courtesy of President Bush in 2006.
Looking ahead to 2011, we see that the reduced tax rates were supposed to "sunset" at that time -- revert to the rates in effect before 2003, which were generally 20%. Regrettably, President Obama's budget, announced early in 2009, calls for the capital gains tax (CGT) to revert to the 20% rate before its sunset termination date.
The government permits the IRS to allow individuals to defer capital gains taxes with certain tax-planning strategies, including charitable trusts (Charitable Remainder Trusts), installment sales, and private annuity trusts. Unlike other countries, the U.S. rigidly demands that U.S. citizens residing abroad pay their income taxes on every dime they've earned, no matter where in the world they earned it. Despite this, a substantial number of the filthy rich who jet around the globe have managed to convey large sums of money to secret bank accounts in Switzerland, Monaco, and other off-shore tax havens, where the account-holders are expected to pay only applicable service fees. (Even if these fees are charged on an hourly basis, the amounts tend to be less than Uncle's demands ....)
Capital gains taxation began in the U.S. in 1913. Until 1921, the maximum rate was 7%. The Tax Reform Act of 1986 set a new standard with its maximum rate of 28%. The time span is 65 years; the increase is 400%. If we truly are a nation of people who talk about nothing but money, as Europeans have long accused us of being, it should be noted that's a trickle-down effect emanating from Washington, D.C.