Conservative leaders have stepped up lobbying efforts this spring, confident that they can persuade the Trump administration to index capital gains to inflation.
The twist? They hope that capital gains inflation indexing can be achieved through regulation rather than legislation, which has been doomed to failure as congressional opponents deride it as a tax break for the wealthy.
Grover Norquist, president of Americans for Tax Reform, pressed President Trump and Treasury Secretary Steve Mnuchin for capital gains inflation indexing at the start of the year and again in April. Norquist and other GOP advocates are counting on Mnuchin to lead the charge with assistance from new National Economic Council Director Larry Kudlow, who has been an outspoken advocate of tying capital gains to inflation for tax purposes using regulation.
“The president should use his executive authority—as he so often has to drain the swamp—to remove this prosperity-killing practice,” Kudlow wrote in a CNBC column last August.
In a letter delivered to Mnuchin earlier in April, Norquist said that indexing capital gains to inflation via regulation would increase wages, household net worth and investment returns for all Americans.
Currently, investors pay capital gains taxes on the difference between the cost of purchasing an asset and its sale price. With indexing, investors would keep more of their earnings, paying taxes only on the difference between what they paid adjusted for inflation and its sale price.
In a letter delivered to Mnuchin earlier in April, Norquist gave the following example of how capital gains indexing would work: Under current policy, someone who invested $1,000 in 2000 and sold it for $2,000 in 2017 would pay capital gains taxes on the $1,000 difference. But if capital gains were indexed, the investor would pay taxes on only $579, since $1,000 in 2000 would be equivalent to $1,421 in 2017.
Currently, the top tax rate for long-term capital gains is nearly 24 percent, including a 3.8 percent surtax on higher earners’ net investment income that was created to fund Obamacare. The GOP pushed to repeal the 3.8 percent surcharge last year but failed, leaving capital gains taxes largely unchanged.
Conservative supporters of capital gains indexing, including the Club for Growth and the Family Business Coalition, contend capital gains indexing would benefit rich, middle-class and poor Americans alike. They say such indexing would help people avoid paying capital gains taxes on income that was reduced (or wiped out) by inflation.
Former presidential candidate Ted Cruz, a U.S Republican senator from Texas, is also a supporter. He introduced legislation last week that would index capital gains.