Capital gains drive record breaking inequality

Capital gains drive record breaking inequality

Capital gains drive record breaking inequality

Capital gains constitute one of the main drivers of income inequality, which stands at record levels in Oregon. The term capital gains refers to income generated from the profitable sale of assets such as stocks, bonds, real estate, a business, or even a work of art. Because such assets are highly concentrated in the hands of the rich, the income produced by the sale of those assets flow to the top.

Capital gains fuel income inequality

Income inequality in Oregon set a new record in 2020,[1] in large part due to the fact that the rich disproportionately make their money from capital gains. The top 5 percent of Oregonians took home 84.5 percent of all capital gains income in 2020.[2] Together, the bottom 95 percent of Oregonians took home just 15.5 percent.

Capital gains are even more concentrated when one looks within the top 5 percent of earners in Oregon. The richest 0.1 percent – fewer than 2,000 Oregonians – took home more than 35 percent of all capital gains income in Oregon in 2020. This tiny group of ultra-rich Oregonians together collected more than twice the capital gains income than went to the lowest 95 percent of Oregonians. The rest of the top 1 percent collected more than 22 percent of all capital gains in 2020. The rest of the top 5 percent took home more than 26 percent of all capital gains income that year.

In dollar terms, Oregon’s rich rake in fortunes in capital gains compared to most Oregonians. In 2020, a member of the top 0.1 percent on average got nearly $1.9 million just from their capital gains. The rest of the 1 percent took home more than $131,000 in capital gains on average. For the bottom 50 percent of Oregonians, the average earnings from capital gains was less than $200.[3] It should be noted, only about one in every five Oregon tax filers reported capital gains or losses in 2020.[4] Most Oregonians within the bottom 50 percent had no earnings from capital gains.

A flood of capital gains in 2021 warn of a grimmer picture of inequality

The above analysis relies on tax data from 2020 provided by the Oregon Department of Revenue. Thus, it does not include data from 2021. But other available information on capital gains income in Oregon suggest that income inequality worsened considerably in 2021.

The most recent Oregon Economic and Revenue forecast shows that in 2021, capital gains growth from the previous year was nearly nine times that of the growth of wages.[5] Capital gains grew by nearly 78 percent that year, while wages grew by less than 9 percent. The growth of capital gains earned by those subject to Oregon’s top income tax rate outpaced the overall capital gains growth rate, meaning the rich captured a disproportionate share of capital gains income in 2021.

The role of capital gains income fueling income inequality is not a new phenomenon. A 2013 study, for example, compared the impact on inequality levels from changes in wages, capital income, and taxes from 1991 to 2006. “By far, the largest contributor to this increase,” the report concluded “was changes in income from capital gains and dividends.”[6]

Lawmakers need to recognize the role of capital gains in fueling income inequality

Income inequality undermines the well-being of Oregonians. Inequality limits social mobility, hindering the possibility for a child born into poverty to move out of it. It leads to worse physical and mental health outcomes, particularly for those lower on the economic ladder. Moreover, income inequality slows economic growth, innovation, and investment.[7]

Lawmakers need to recognize the damage caused by growing income inequality. At the very least, it means rejecting policies that would make inequality worse. Better still, lawmakers should enact policies that reduce inequality. In broad strokes, that means:

    • Raise rates on realized capital gains. At the federal level, gains on assets held for longer than a year are taxed at a lower rate than income earned from a paycheck. “The Congressional Budget Office has estimated that three-fourths of the benefits of this provision go to the top 1 percent of households by income level.”[8] Congress should raise rates on realized capital gains to treat it like other forms of income.


    • Don’t wait to tax capital gains. Under current law, workers see their income taxed on a regular basis, while holders of capital don’t pay taxes on their gains until they sell. This allows the wealthy to avoid taxes for years, and sometimes forever. If they die before selling, the assets pass on to heirs untaxed. This allows the wealthy to amass vast fortunes. Federal lawmakers should enact “mark-to-market” taxation, which would require capital gains taxes be paid annually, rather than allow the rich to defer payment until a later date.


    • Raise tax rates on the rich. Much of the income flowing to the richest Oregonians is simply the product of rising asset prices that produce massive capital gains income. Raising taxes on the rich would largely target these large flows of unearned income, and would produce significant revenue to invest in the well-being of all Oregonians.


    • Don’t make matters worse. Oregon currently has several tax breaks favoring capital gains income that collectively cost the state more than $1 billion per budget period.[9] Lawmakers should reject any proposal to further cut taxes on capital gains income and reign in tax breaks that benefit capital gains income.



[1] Mac Innis, Tyler, Income inequality in Oregon hits new record, Oregon Center for Public Policy, October 31, 2022.

[2] Unless otherwise noted, all figures are Oregon Center for Public Policy analysis of Oregon Department of Revenue data. Data are for full-year filers. Filers with negative income are excluded.

[3] Averages are used instead of medians due to data limitations.

[4] There were 1,919,410 full-year returns filed in Oregon in 2020. Of those, 391,550 reported some form of capital gain or loss. For more, see exhibits 21 and 22 in Oregon Department of Revenue Research Section, Oregon Personal Income Tax Statistics; Characteristics of Filers: 2022 Edition: Tax Year 2020, Oregon Department of Revenue, 2022.

[5] Oregon Office of Economic Analysis, Oregon Economic and Revenue Forecast, Dec. 2022.

[6] Hungerford, Thomas L., Changes in Income Inequality Among U.S. Tax Filers between 1991 and 2006: The Role of Wages, Capital Income, and Taxes, January 23, 2013.

[7] Mac Innis, Tyler, Income inequality in Oregon hits new record, Oregon Center for Public Policy, October 31, 2022.

[8] Davis, Carl, Emma Sifre and Spandan Marasini, The Geographic Distribution of Extreme Wealth in the U.S., Institute on Taxation and Economic Policy, October 2022.

[9] Oregon Department of Revenue Research Section, State of Oregon Tax Expenditure Report: 2021-23 Biennium, Oregon Department of Administrative Services, 2020.

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Tyler Mac Innis

Tyler Mac Innis is a Policy Analyst with the Oregon Center for Public Policy

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