Jenny Beth’s Journal: It’s time to end the tax on phantom “gains”
Wealth creation is essential to making America great again. That’s why it’s disconcerting that we still have a silent tax based on inflation on capital gains – a tax that leads to less capital, depresses wages and job growth. Inflation is a tool created by the Washington Swamp to expand the supply of money faster than the increase in goods and services. Senator Ted Cruz (R-TX) and Senator Jim Inhofe (R-OK) introduced legislation that would index capital gains for inflation which would lead to more investments and economic growth.
Say you purchased stock in 2000 for $1,000. You sold it in 2018 for $2,000. Under current regulations, which require you to calculate the capital gain using nominal values, your capital gain is the $2,000 sale price minus $1,000 purchase price, which equals $1,000. That would be the amount of investment profit on which you would apply the capital gains tax. But $1,000 in 2018 is not worth the same as $1,000 in 2000.
According to the Bureau of Labor Statistics inflation calculator, that $1,000 you spent in 2000 is only worth $681 in 2018. To have the same purchasing power as $1,000 in 2000, you would need $1,468 in 2018. So the proper calculation would then be the $2,000 sale price minus the $1,468 purchase price, which equals $532. That would be the amount on which you would apply the capital gains tax.
Republican Senator Ted Cruz of Texas gets it. On Tax Day this year, he and Republican Senator Jim Inhofe of Oklahoma introduced the Capital Gains Inflation Relief Act of 2018, which would end the taxation of capital gains based on inflation. That is not just the morally right thing to do, as no one should pay a tax on phantom “gains” that exist only on paper because of inflation, it is also the economically right thing to do.
It would immediately increase the value of real estate, stocks and the like, and would thereby encourage more investment, free up unproductive assets, and create more jobs. Cruz said that indexing capital gains for inflation “encourages people to invest more capital into businesses, and when you are investing more capital in business, it means you are hiring more people. It means you are buying more equipment, it means you are raising wages, and that you are driving economic growth.”
A bill or an executive order dismantling the silent tax of inflation on capital gains will encourage more people to invest more capital into businesses which would then create more jobs and increase overall economic growth. We hope that the administration will continue to make decisions that are good for America and good for keeping the American Dream alive.