U.S. stocks keep hitting record highs, but tax revenues are falling short, sparking urgency at the IRS.
On October 6, the S&P 500 Index once again closed near a historic high, having broken the closing record more than 30 times so far this year. Since the pandemic low in March 2020, the US stock market has risen about fourfold in six and a half years.
According to Federal Reserve data, unrealized capital gains held by US households have exceeded $30 trillion—just the untaxed profits Americans have made from stock trading would be enough to pay off three-quarters of the US national debt.
However, the treasury has not become flush with cash because of the bull market. For the 2026 fiscal year, the federal fiscal deficit is projected to reach $2.1 trillion. Even more critical are the interest payments: in just the first 11 months, debt interest payments have reached $1.27 trillion, a staggering 13% year-on-year increase, which is even more than the cost of maintaining the entire US military.
In the 2025 fiscal year, federal individual income tax revenues totaled $2.7 trillion, a sizable amount, but it is minuscule when compared to the $30 trillion in unrealized profits. Moreover, the wealthier a person is, the lower the effective tax rate they pay.
According to statistics from the IRS, the top 1% of earners receive 75.4% of the nation's long-term capital gains—three-quarters of stock trading profits end up in the pockets of the wealthiest group. Yet this group, which takes three-quarters of the profits, is actually seeing its tax rate fall: statistics show that from 1954 to 2021, less than 20% of all capital gains realized by Americans were actually taxed. Taking both realized and unrealized capital gains into account, the effective tax rate is only about 3%.
With a $30 trillion tax base clearly within sight, but unable to be taxed, the IRS can no longer sit idly by.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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