Capital Gains Should be Indexed for Inflation
- High inflation has increased nominal gains, masking potential real losses that create sizable tax burdens for many households. Taxes on nominal gains calculated without considering inflation can be a tax on losses.
- Inflation-related gains discourage the sale or transfer of assets such as property, which may contribute to the current housing shortage.
- We can address this unfairness by indexing capital gains for inflation.
Indexing for Inflation is an Economic Booster
- Indexing capital gains for inflation would “unlock capital for investment, increase wages, create new jobs, and grow the economy,” by incentivizing “investors to realize gains on their investments.”
- According to 2018 estimates by the Tax Foundation, indexing capital gains for inflation would grow the economy by approximately $22 billion over the long run.
- The tax code’s exclusion of $250,000 of gain for individuals (and up to $500,000 for married couples filing jointly) from taxes on property sales needs to be indexed for inflation to provide homeowners with relief and encourage them to sell their homes.
- Indexing capital gains for inflation would eliminate some of the concerns about heightened tax burdens and improve women’s financial position as they age.
Taxing Unrealized Gains is the Wrong Solution
- Proposed taxes on unrealized gains would be an economic disaster for asset holders, entrepreneurs, and the federal government.
- Taxing unrealized gains would be complex to administer, encourage tax avoidance, create liquidity challenges for asset holders, and reduce the capital that entrepreneurs and small business owners tap into to start and grow businesses.
- As women struggle to obtain bank financing, and even when successful, they face smaller loan amounts and higher interest rates than their male counterparts, taxing unrealized gains will further reduce their access to critical funding sources.
Click HERE to read the policy focus and learn more about capital gains.