President Trump has named CNBC host (and faithful Catholic) Larry Kudlow to be director of the National Economic Council. The appointment of Kudlow comes after the resignation last week of Larry Cohen, who opposed Trump’s tariffs on steel and aluminum.
Over at Forbes, Ryan Ellis suggests that Kudlow should push Trump to sign an executive order to index capital gains to inflation, a proposal Kudlow has long supported:
In the tax world, reporting a capital gain is a pretty simple exercise. When you sell an asset, like a stock, you report how much you sold it for. You can subtract what you bought it for (your “basis”) from what you sold it for to arrive at your gain. You pay tax on the gain. If you’ve held the asset longer than a year, you generally pay tax at a lower rate (currently 20 percent, plus the 3.8 percent Obamacare investment surtax) instead of the ordinary tax rate (which currently runs as high as 37 percent, plus the surtax).
A problem arises in that your basis purchase may have happened many years ago. The real value of the money you used to buy a stock has been eroded by inflation. For example, $100 in 1990 is only worth $51.41 today, a little more than half the supposed basis in real terms. If you were instead allowed to index the $100 basis to inflation, it would be worth $194.52 today, nearly double the nominal purchase price…. By indexing the basis to inflation, our investor gets to keep more of his own money. That’s then available to reinvest in other ventures or for him to consume. Uncle Sam still gets to tax the gain–he just doesn’t get to take the phantom gains attributable to inflation.