Andrew Ang quantifies how much federal taxes have reduced the returns earned by U.S. equity investors over the past century. Using a simulation of the tax code from 1925–2025, the paper finds that taxes have historically consumed more than one-third of long-term equity wealth, with dividend taxation proving far more costly than many investors realize.
Uncle Sam’s Cut: A Century of the Federal Tax Drag on US Equity Returns
Andrew Ang
Research
44 Pages
Key Takeaways
Tax Drag Matters: Across eight rolling 30-year periods, federal taxes reduced annualized equity returns by 347 bps, lowering average returns from 10.47% to 7.00%.
Dividends Drove Taxes: Taxing dividends at capital gains rates would have reduced average tax drag from 347 bps to 205 bps, highlighting dividends as the largest historical tax burden.
Modern Taxes Improved: During 1996–2025, annual tax drag fell to 165 bps, while the step-up in basis reduced it further to 127 bps for a 30-year-old investor.
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