From Stephen Moore in the WSJ’s Political Diary:
We’ve learned that the White House is seriously considering a plan to index capital gains taxes for inflation as part of its economic stimulus package. This would be done by an executive order by the President, not through legislation. Under the executive order, the Treasury Department would define “cost” in assessing capital gains taxes as “historical cost plus inflation.”
It’s about time. Such an order would undo an injustice in the tax code that means, as a new National Center for Policy Analysis report puts it, that “investors pay billions of dollars of tax on phantom gains.” The American Shareholders Association strongly supports indexation and argues that if Congress were to challenge or overturn President Bush’s order, “this would make the November election worth tens of thousands of dollars for millions of Americans. They would not forget.”
Richard Rahn , chairman of the Institute for Global Economic Growth, called for indexing on the opinion pages of the Wall Street Journal last week in a column, “Inflation and the Tax Man.”
Accounting for inflation in this way has the advantages of producing more short-term revenue to the Treasury as long-term gains are “unlocked.” Furthermore, lowering the cost of capital would stimulate investment and the stock markets, and would increase the fairness of the tax system by not taxing phantom gains for people at all income levels. It would also square capital-gains taxation with the U.S. Constitution.
Lowering the capital gains rate is a key element in the NAM’s plan for economic growth.
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