Investors.com "Taxation: A few months before he became President Trump's top economic advisor, Larry Kudlow wrote a column urging Trump to index capital gains taxes to inflation. Thankfully, the Trump administration appears to be listening. Not only would indexing fix a glaring problem in the tax code, it would add still more juice to the economy.
"In a column published by IBD last August, Kudlow called the lack of inflation adjustment for capital gains taxes "an unfair and misguided policy that punishes risk and success." He said Trump "should use his executive authority — as he so often has to drain the swamp — to remove this prosperity-killing practice."
"Right on all counts.
"First, consider the fairness argument. One of the most important tax reforms enacted by President Reagan in the early 1980s was to index income tax brackets to inflation. Before that, families whose incomes just kept pace with inflation would get pushed into higher and higher tax brackets. Indexing tax brackets to inflation ended this unfair, and hidden, tax.
"But capital gains still suffer from lack of indexing. Let's say an investor bought $1,000 worth of a company's stock in 2000. Today, it's valued at $1,500. If he sold the stock, he'd face up to a 23.8% capital gains tax on the $500 gain.
"That's not counting any state-imposed capital gains taxes.)
"But in real terms, his investment has gained only $7. So, his effective capital gains tax rate is 139%. If the gains were indexed to inflation, his tax bill would be $1.67 instead of $119.
"The longer the investment, the worse this inflation tax get. The effective tax rate, in fact, can be infinite, if the inflation-adjusted "gains" turn out to be losses." . . .
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