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Repeal the Inflation Tax

A version of this blog post appeared as a press release from the American Conservative Union.

Taxing capital gains amounts to double taxation

ALEXANDRIA, VA— The American Conservative Union, the nation’s oldest and largest grassroots conservative lobbying organization, announced its strong support for HR 6057, which would change the way the Treasury Department taxes capital gains, so that only real gains, not gains plus inflation, are subject to taxation.

Since 1913, the Treasury Department has ignored the effects of inflation in calculating the amount that the government collects when an investor sells an asset that has appreciated. For example, if you purchased a stock for $10 a share in 1952 and sold it for $20 a share in 2002, you would be forced to pay capital gains on the transaction—even though the investment was a loss once inflation is factored in.

“In other words, even if after selling an asset with a nominal gain, your investment is a loss in real terms, you still owe cap gains taxes,” said J. William Lauderback, ACU’s executive vice president.

“For this reason, the capital gains tax is actually two taxes,” continued Lauderback. “First, it is a tax on the increase in the value of your assets when sold—a disincentive to investing that is the bedrock of our capitalist economy. Second, it is a tax on the inflationary increase in the value of your assets. The latter—known as the inflation tax—amounts to double taxation, and is thus one of the most unfair and economically destructive taxes the federal government has concocted.”

Thankfully, H.R. 6057, sponsored by Congressmen Mike Pence (R-IN) and Eric Cantor (R-VA), would rectify this charade by repealing the inflation tax. Beginning in 2007, the bill would change the way capital gains are taxed by adjusting for inflation the cost basis of an asset one has owned for more than three years.

As many analysts have noted, the passage of this legislation would significantly strengthen the U.S. economy: by eliminating taxation on inflation-generated gains, the bill would promote long-term investment, a vital part of a robust economy; taxpayers would finally be able to realize their true gains and build wealth for their families; and the heavy burden of taxation would be relaxed.

“ACU strongly supports the full repeal of the economically stifling capital gains tax. In the absence of the votes necessary to accomplish this goal, we applaud the 80-plus congressmen who have cosponsored HR 6057,” said Lauderback.