STEPHEN MOORE: Trump Should Index The Capital Gains Tax For Inflation

President Trump should follow up on his historic Big Beautiful tax bill with an extra booster shot for the economy by immediately indexing the capital gains taxes for inflation.

There is a reasonable chance he can do this without having to go through Congress. And our sources in the Administration tell us Trump is interested in doing just that.

The tax on inflationary gains is patently unfair.

Consider a middle-class investor who bought a stock at the start of the Biden presidency for $10,000 and sold it off four years later at a valuation of $12,200. She would pay a tax of about $400 on the “gain” of $2,200. But over that time period, prices of everything rose on average by 22% thanks to Bidenflation, so she didn’t really gain anything.

In this way the 23.8% (20% + the 3.8% Obama add on investment tax) cap gains tax on the sale of a stock, a business or a property can rise to 50%, as during the Bidenflation years, or even above 100% if inflation gets into double digits, as in the 1970s. Back then many investors paid a tax even when they sold investments that lost money.

Presidents dating back to George H.W. Bush have toyed with the idea of an executive order to end this unjust inflation tax. Lawyers have always talked them out of it.

But Donald Trump has proven time and again that he goes boldly where previous presidents wouldn’t. When the flocks of starch-white-shirt legal eagles and the tenured swampy political pros advise no, he routinely responds: why not?

Trump could order the Treasury Department to properly define a “capital gain” as any increase in the value of a stock or property AFTER INFLATION ADJUSTING from the time of the purchase of the asset to the time of the sale. In that case, the real rate of tax on capital gains would fall and investment would rise. And tax revenues would RISE!

We have decades of evidence that when the tax on capital gains is lowered, the government gets more revenue. Under current law, the best way to avoid paying ANY capital gains tax is to hold on to the asset for as long as possible. This is called the “lock-in effect of the cap gains tax.” Investors refuse to sell to old stocks not because they expect a higher rate of return, but to avoid paying the tax penalty.