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Letter


NTU Urges Support of H.R 2945, the “Capital Gains Inflation Relief Act.”
An Open Letter to Representative Walsh

October 12, 2011

The Honorable Joe Walsh
United States House of Representatives
432 Cannon House Office Building
Washington, DC 20515

Dear Representative Walsh:

On behalf of the 362,000 members of the National Taxpayers Union (NTU), I write in support of your bill, H.R 2945, the “Capital Gains Inflation Relief Act,” which would amend the Internal Revenue Code to index the capital gains tax to inflation. This common-sense reform would add a long overdue measure of fairness to the tax law by ensuring investors are not taxed on phantom gains.

Since 1913, the Treasury Department has ignored the effects of inflation when calculating the appreciation of property for tax purposes. As such, under current law capital gains taxes are due if a taxpayer sells an asset with a nominal gain, even if the investment was a loss in real terms. As a simplified illustration, if a taxpayer purchased $100,000 worth of stock in 1991, and sold it 20 years later for $165,000, current rules would force him to pay tax on the $65,000 “profit.” However, due to cumulative inflation over the course of those intervening 20 years, the owner of the stock has received no net economic benefit. 

The Capital Gains Inflation Relief Act of 2011would finally put an end to this unfair practice. Starting in 2012, a taxpayer holding an asset for more than three years will have their gain or loss determined by a cost basis adjusted for inflation using the “Gross Domestic Product Deflator.” 

In addition to being a simple matter of fairness, H.R. 2945 could provide a significant boost to the economy. Currently, investors are forced to factor inflation into their long-term decisions. This already speculative endeavor has become even riskier given Washington’s unsustainable spending habits and untested monetary policy. This bill would remove that uncertainty, potentially leading to higher levels of investment, an improved capital stock, and ultimately, greater economic growth. Moreover, by allowing taxpayers to realize the true gains from their investments, H.R. 2945 will ease the path toward building wealth for their families. As we witnessed in 1997 and 2003, policies that reduced the burden of capital gains taxation led to increases dramatic increases in household net worth.

Capital gains taxation is not merely an issue for the mega-rich. Over half of all Americans own stock, most of whom are solidly middle class. Although fundamental tax reform may engender a variety of different opinions, inflation-indexing of capital gains should be something every Member of Congress, regardless of party affiliation, can support. Such was the case when wide bipartisan majorities backed indexation of tax brackets and exemptions in the 1980s, and so it should be today. NTU encourages your fellow Members to cosponsor and work to pass this much-needed reform.  

Sincerely,

Brandon Greife
Federal Government Affairs Manager