State-Level Capital Tax Progressivity and Wealth Inequality in the United States

This paper investigates the relationship between state-level capital gains tax progressivity and wealth inequality in the United States from 2000 to 2025, focusing on California, Texas, and New Hampshire. The central research question is whether progressive taxation of capital income at the state level can effectively mitigate rising income and wealth disparities. Using a panel data econometric framework with fixed-effects and difference-in-differences models, the study estimates the impact of top marginal capital gains tax rates on inequality measures such as the Gini coefficient and top income shares. The results indicate that higher capital gains taxes are associated with modest reductions in inequality and slight improvements in median net worth growth, though structural wealth concentration persists. These findings align with optimal taxation theory, suggesting that capital taxation can support redistribution without significant economic distortion. Future research should explore interactions between state and federal regimes, as well as complementary policies that expand asset ownership and strengthen fiscal capacity.