Capital gains are the profits realized from the sale of an asset and are included as part of taxable income. A handful of states have favorable rates toward capital gains (or don’t tax them at all because they do not have an income tax).
Other states tax capital gains as ordinary income. Among the most offensive states are NY, NJ, and CA. These states have concentrations of high income individuals and businesses who pay tax at high state tax rates. And they give no rate reduction for capital gains.Such tax policy discourages the sale of less productive assets and thereby reduces investment opportunities and economic growth.
Furthermore, taxes on capital gains (just like dividends) are subject to double taxation. This means every dollar of capital gains taxed to an individual has already been taxed at the entity level. No other major country double taxes this income. And for states to not even give a rate break for this double-taxed income is as mean-spirited as it is egregious.
High capital gains taxes are inequitable, destructive, and detrimental to the economy. They should be lower, not higher.