Tax Foundation Statements in Support of Indexing Capital Gains

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Posted by ATR on Wednesday, September 4th, 2019, 1:33 PM PERMALINK

“Capital gains should be indexed to inflation.” – Tax Foundation -- July 29, 2018

“When that inflation is ignored in the taxation process, the investor gets taxed on gains that they didn’t make.” -- Tax Foundation -- July 23, 2018

“Let's get real. Inflation-related gains on the sale of assets are not a real increase in wealth. It's time to index the purchase price of assets for inflation to provide savers some relief from this tax on fictitious income.” – Tax Foundation – March 6, 2018

“It is time to ‘get real’ with capital gains taxes. The purchase price of assets later sold for capital gains or losses continues to *not* be adjusted for inflation.” – Tax Foundation – July 16, 2018

“Under the current tax system, capital gains are not adjusted for inflation, meaning individuals pay tax on income plus any capital gain that results from price-level increases. Inflationary gains do not represent a real increase in wealth, thus taxes on inflationary gains are taxes on ‘fictitious’ income, which increases the effective tax rate on saving and investment.” – Tax Foundation – April 16, 2019

“In other cases, inflation can account for 100 percent of the capital gains tax owed; further, inflation can cause a nominal gain to be realized despite suffering a capital loss in real terms. Ultimately, the lower rate on capital gains does not mitigate the inflation issue, as taxpayers still face tax liability whether they made a real gain or real loss.” – Tax Foundation – April 16, 2019

“Inflation-related gains on the sale of assets are not a real increase in wealth. Indexing the purchase price (tax basis) for inflation would provide savers some relief for this type of tax on fictitious income.” – Tax Foundation – March 6, 2018

“Failure to index the purchase price (tax basis) of assets increases the effective tax rate on saving and investment. Less capital is formed, depressing wages and employment.” – Tax Foundation – March 6, 2018

“Inflation is low today, but that may not always be the case. Indexing provides important protection for all citizens, even those who have no capital gains, by reducing government’s ability and incentive to raise effective tax rates by inflating the currency.” -- Tax Foundation – March 6, 2018

“It is time to ‘get real’ with capital gains taxes. Many elements of the income tax are adjusted for inflation, such as tax brackets, standard deductions, and income thresholds or dollar amounts of some tax credits. However, the purchase price of assets later sold for capital gains or losses is not adjusted for inflation. As a result, inflation can do a real number on savers by turning real losses into taxable nominal gains. To avoid such outcomes, it would make sense for the government to allow an inflation adjustment for the cost of assets held outside of tax-preferred saving arrangements. (In pensions, retirement plans, and education savings plans, the problem is handled by other means, either by tax deferral or by exclusion of tax on gains.)” – Tax Foundation – March 6, 2018

“Some might argue that capital gains receive preferred tax treatment under current law, because the gain is deferred until realized, and it receives a lower tax rate than ordinary income. The lower rate is the ‘capital gains differential,’ which is sometimes rationalized as compensating savers for inflation. However, the capital gain differential does not properly adjust for the excess real tax burden due to inflation. If the nominal gain is really a loss, then even a reduced tax rate is too high. If the gain is in part a real gain, but a small one, then the reduced rate is helpful, but still inadequate. – Tax Foundation – March 6, 2018

“In some instances, the practice of taxing the nominal gain can lead to an infinite effective rate on real capital gains when the increase in price is only due to inflation.” – Tax Foundation – December 17, 2013

“When stocks are bought at particular high points in the market, inflation can account for 100 percent of the capital gains tax owed. In fact, the inflationary increase in price can cause a nominal capital gain for a taxpayer despite suffering a capital loss in real terms.” – Tax Foundation – December 17, 2013

“Taxpayers can end up paying a very high tax rate on capital gains and can even pay taxes on capital gains when the real value of their investment has actually declined. In fact, research from the 1980s showed that taxpayers paid an additional $500 million in extra tax due to inflation in just 1973. Taxes on capital damage economic growth, and failing to account for inflation exacerbates the damage.” -- Tax Foundation – December 17, 2013

“While repealing this tax would be the preferable option, inflation indexing would be an improvement that would link the tax to real increases in income rather than increases in inflation.” -- Tax Foundation – December 17, 2013

“Capital Gains Taxes Should Be Indexed to Inflation” – Tax Foundation – July 24, 2018

 

 

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