Top tax rate on capital gains could reach highest level since '70s

The top federal tax rate on capital gains could reach levels not seen since the 1970s under the House Democrats' proposed $3.5 trillion budget reconciliation package, according to a new report.

That plan would raise the so-called marginal rate on capital gains — what investors pay when they profit when selling a stock, bond or other asset — to 31.8% at the federal level. But because most states also tax capital gains, the average rate for the nation's wealthiest investors would reach 36.8% and exceed 40% in states such as California and New York, concludes the analysis by the Tax Foundation, an independent tax policy center known for opposing tax increases.

Currently, the top federal capital gains rate is 20% for people earning more than $400,000. Here's how the House Democrats' plan could push that rate to 31.8% for some investors.