Monday, October 15, 2018
Kyle Pomerleau (Tax Foundation) presents Indexing Capital Gains to Inflation: Is It Worth It? at UC-Irvine today as part of its Tax Policy Colloquium Series:
Republican lawmakers and the Trump administration have reintroduced the idea of adjusting the basis of capital gains to inflation. Proponents of capital gains indexing argue that taxing individuals for an increase in the price level is unfair. They also argue that indexing capital gains would unlock capital, which would result in significant economic growth. It is true that indexing capital gains to inflation would increase the incentive to invest and results in a slight boost to the size of the economy. However, the effect would be much smaller than proponents argue. At the same time, it would reduce revenue and make the tax code slightly less progressive.
By itself, indexing capital gains to inflation may be a slight improvement to the current income tax. However, there are other reforms to boost output and improve the treatment of saving that are probably worth pursing first.