Taxing Das Kapital: Public Perceptions and Tax Policy Preferences

This paper speaks to the growing debate surrounding the politics of taxation and how different perceptions and information can relate to and potentially influence policy preferences. We start with the observation that, cross many rich democracies, tax rates on capital gains are lower than top tax rates on ordinary income. Moreover, capital gains also tend to be (hyper)concentrated amongst high earners, undermining the progressivity of tax systems. In the U.S., for instance, nearly 70 percent of realized long-term capital gains go to the top one percent of households. Despite contributing to the growth of income and wealth inequality, capital gains taxation has received relatively little public and academic attention. This is even more surprising as privileging income stemming from selling assets or receiving qualified dividends — compared to income from one’s own labor — could violate deep-seated deservingness norms and meritocratic beliefs. At the very least, it should go against the equal treatment fairness beliefs that have been found to play an important role in the politics of taxation. The pressure recent crises and past rounds of unfunded tax cuts on wealthy individuals have placed on public budgets also grants this question immediate political relevance. One potentially important source of the political viability of privileged capital gains taxation, and the focus of this paper, could be widespread ignorance. “Tax illiteracy” is a theme highlighted in several studies surrounding public support for regressive tax policies. For most citizens who derive a negligible or nonexistent portion of their income from financial assets, the policy could be a remote concern with high complexity and low salience. Inattentive and low information voters may also have large “electoral blind spots,” with regards to complex tax policies. In this paper, we investigate public perceptions of and preferences toward capital gains taxes. We do so in two parts. First, using a special module from the 2024 Cooperative Election Survey, we investigate the extent to which different groups of U.S. respondents are aware of the preferential treatment of capital gains income relative to labor income. We find only half of respondents believe the top marginal tax rate on ordinary income is higher than the top rate on long-term capital gains. Moreover, we find that beliefs regarding these differences also predict preferences towards taxing capital gains. Second, we complement these descriptive findings by making use of a novel survey experiment with over 4,000 U.S. respondents. Participants are presented with varying information regarding the discrepancy between top tax rates on capital and labor income, the high concentration of capital income among the wealthy, and this information combined. We find all three treatments increase support for raising the top capital gains rate. We also plan to run a complementary study in Germany in early 2026 to examine if such forms of information shift preferences to a similar extent.