Investors, don't move to California. In addition to sunshine and sandy beaches, the Golden State boasts the nation's highest tax rate on capital gains, according to new research by the Tax Foundation, a Washington, D.C., tax think tank.
A well-heeled Californian in the state's highest tax bracket would give up 33 percent of his profit on investments to state and federal capital gains taxes, compared with just 25 percent for someone who lives in New Hampshire, according to the report.
In addition to looking at the rates themselves, Tax Foundation's analysis factors in the complex alchemy of federal and state income tax deductions, credits and phase-outs that can alter stated tax rates. Indeed, California's top tax rate of 13.3 percent -- if merely added to the top federal capital gains rate of 23.8 percent (that's the 20 percent base rate, plus the 3.8 percent excise tax on unearned income over set levels that was passed as part of the Affordable Care Act) -- would add to more than 37 percent. However, state income taxes are deductible on federal returns, so the real rate drops to 33 percent.
Still, that's far and away the highest capital gains levy in the country, according to the Tax Foundation. And high capital gains rates are particularly egregious when you consider that this levy is taxing income that arguably has already been taxed. After all, corporations pay income taxes on gross profits, passing on the remains to investors through dividends and increased value of their stock (capital gains). Plus, investors buy shares and other capital assets with after-tax dollars.
Levying another high tax on these gains discourages savings and investment, says Kyle Pomerleau, the Tax Foundation economist who conducted the study.
Here are the rest of the states with the 10 highest capital gains rates:
New York, 31.5 percent
Oregon, 30 percent
Minnesota, 30.9 percent
New Jersey, Washington, D.C. and Vermont, all at 30.4 percent
Maryland, 30.3 percent
Maine, 29.8 percent
Idaho, 29.4 percent
To see where your state's capital gains rate ranks, check out the Tax Foundation's capital gains map.