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.
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