Congressman Tom Emmer (R-Minn.) has reintroduced the “Retirement Inflation Protection Act,” legislation that will amend the tax code to index capital gains taxes to inflation for American taxpayers over the age of 59 ½.
All Members of Congress should support this important, pro-taxpayer legislation to ensure seniors are not taxed on inflationary gains.
Currently, if a senior purchases a stock for $100, and later sells that same stock for $400, he must report and pay taxes on a $300 capital gain. In many cases, much or all of the capital gain is merely inflation. With an historical inflation rate of 3%, inflation halves the real value of all assets every 24 years. While this is bad enough, paying taxes on purely inflationary gains adds insult to injury.
Ending the taxation of inflationary gains will have clear, immediate economic benefits.
Indexation would free up “sticky capital”—buildings, land, stocks—that are held by individuals or businesses rather than sold and put to higher and better use because much of the “capital gain” is inflation and the high capital gains tax discourages mobility of capital. The value of all property in America would increase.
Lowering the capital gains rate would also encourage the formation of more capital and would result in the creation of more jobs, raising wages and worker productivity.
Ending the capital gains tax would help Americans all across the country. Whether one is a worker saving for retirement or a farmer selling off a parcel of land to acquire capital for new equipment and machinery that would help grow their family business, eliminating capital gains will be beneficial to business.
Recent history shows that reducing the tax on capital gains increases short-term federal revenues by creating an unlocking effect, where pent-up gains they had built up over time are realized at greater rates than they would be if the tax was not changed.
While this bill is a good first step, capital gains taxes should be indexed to inflation for everyone. Americans should not be punished by being taxed on inflationary gains.
There is strong support for indexing capital gains taxes to inflation. ATR President Grover Norquist last year led a coalition of 51 conservative, free-market, pro-business, and pro-family activists and organizations in calling for President Trump to end the inflation tax on capital gains. This policy is also supported by Senator Ted Cruz (R-Texas), White House Chief Economic Adviser Larry Kudlow, Vice President Mike Pence, Ways and Means Republican Leader Kevin Brady (R-Texas), The National Federation for Independent Business, The Small Business and Entrepreneurship Council, the Republican Study Committee, and The Farm Bureau.
Even current Senate Minority Leader Chuck Schumer (D-N.Y.) once supported ending inflation tax on capital gains. In a 1992 video then-congressman Chuck Schumer stated:
“If we really want to increase growth, there are proposals that we can do. I would be for indexing all capital gains and savings and borrowing.”
Current House Majority Leader Steny Hoyer (D-Md.) also supported indexing capital gains to inflation in 1992. He said:
“The capital gains provisions in H.R. 4287 benefit small business by indexing newly purchased assets. Income gauged would be much more reliable so that, real not inflationary gains will be taxed, and taxed at the same 28 percent maximum rate on gains.”
Passage of the Retirement Inflation Protection Act will ensure that seniors are protected from the inflation tax. It will ensure Americans keep more of their own money for retirement by ensuring they do not have to pay taxes on inflationary gains. This is great start, but Congress should continue working towards indexing the capital gains tax for all Americans.