Sunday, August 13, 2017

Kudlow Calls for the Indexing of Capital Gains to Inflation; The 'Revenue Loss is a Good Thing'

This is a heroic proposal, a call for a real tax cut.

Larry Kudlow writes:
President Donald Trump's pledge to "Make America Great Again" requires nothing less than reigniting economic growth and prosperity. Wealth creation is essential. As Congress pivots to tax reform -- which is crucial to the wealth creation -- the president could take matters into his own hands by issuing an executive order to index capital gains for inflation....
Congress has repeatedly toyed with legislation to index capital gains. In fact, a measure containing a fix for the problem landed on then-President Clinton's desk in 1995, only to be vetoed.
If President Trump wants to hear firsthand why capital gains indexation is so important, he need only speak with his vice president. In 2006, then-Rep. Mike Pence introduced legislation with 88 co-sponsors to index capital gains for assets held for more than three years...."
As has been well documented," writes Alan Auerbach, an economist at the University of California, Berkeley, "realized capital gains may be subject to tax rates that easily exceed 100 percent of real gains in the presence of inflation."...
Capital gains taxes totaled $134 billion last year. According to [Gary Robbins, a former economist for the Department of Treasury], approximately one-fourth of that revenue was generated by taxing inflationary gains. That translates to a $34 billion tax on phantom income.
Opponents of capital gains indexation say the associated revenue loss would be too great. But inasmuch as inflationary gains should not have been taxed in the first place, a revenue loss is a good thing.

This is what we need. Not tax "reform" that simply taxes from a new direction. We need tax cuts.



  1. The Republicans have become just as fond as the Democrats of rivers of money flowing into Washington DC. My guess is that no substantial changes are coming.

  2. Gov. statistics massively understate inflation, so the benefit would be negligible.

    1. The admission of what inflation does to discourage investment is probably more important than the magnitude of the tax cut at first.

  3. That's a straw-man. Given how many hands the government has in the cookie jar, anything cut is going to be negligible. You've got to start somewhere!