Only about a quarter of U.S. stocks are owned by people who pay taxes on their gains, down from more than 80 percent in the 1960s, according to new analysis.
That shift, outlined in a paper done for the nonpartisan group Tax Analysts, means the government is collecting far less revenue from stock market gains than it used to. As a result, any potential changes in the capital gains tax may not have as great an impact on government revenue as many might expect.
Hillary Clinton has called for an increase in the top tax rate for capital gains. Meanwhile, some Republicans have called for lowering the capital gains rate, contending it represents "double taxation" of corporate earnings.
"Understanding the erosion of the taxable shareholder base is critical for determining how best to tax corporate earnings — and capital more generally," according to the report.
The paper, by Steven M. Rosenthal and Lydia S. Austin of the nonpartisan Tax Policy Center, found that three-quarters of outstanding U.S. shares last year were owned by tax-exempt accounts (including Roth IRAs), foundations or foreigners. Meanwhile, the number of taxable shareowners has fallen precipitously over the past four decades. Whereas 84 percent of shares were held by taxable investors in 1965, that number was just 24.2 percent in 2015.
"Corporate earnings are largely tax exempt at this level," the report said.
The report found that retirement accounts hold roughly 37 percent of stocks. Foreigners, who generally don't pay U.S. capital gains taxes on their sales of stocks, hold about 26 percent of U.S. stocks.
"This decline in stock ownership by taxable investors has been hard to spot since it is not obvious in data published by the Federal Reserve and others," the report found. Yet it "affects many of the current tax policy debates," the authors said.
CORRECTION: A tax study cited in this article was conducted by Steven M. Rosenthal and Lydia S. Austin of the nonpartisan Tax Policy Center and for the nonpartisan group Tax Analysts. The conscripting group was misstated in an earlier version of this article.