The Honorable Joe WalshUnited States House ofRepresentatives432 Cannon House Office BuildingWashington, DC 20515
Dear Representative Walsh:
On behalf of the362,000 members of the National Taxpayers Union (NTU), I write in support of yourbill, H.R 2945, the “Capital Gains Inflation Relief Act,” which would amend theInternal Revenue Code to index the capital gains tax to inflation. This common-sensereform would add a long overdue measure of fairness to the tax law by ensuringinvestors are not taxed on phantom gains.
Since 1913, theTreasury Department has ignored the effects of inflation when calculating theappreciation of property for tax purposes. As such, under current law capitalgains taxes are due if a taxpayer sells an asset with a nominal gain, even ifthe investment was a loss in real terms. As a simplified illustration, if ataxpayer purchased $100,000 worth of stock in 1991, and sold it 20 years laterfor $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 20years, the owner of the stock has received no net economic benefit.
The CapitalGains Inflation Relief Act of 2011would finally put an end to this unfairpractice. Starting in 2012, a taxpayer holding an asset for more than threeyears will have their gain or loss determined by a cost basis adjusted forinflation using the “Gross Domestic Product Deflator.”
In addition tobeing a simple matter of fairness, H.R. 2945 could provide a significant boostto the economy. Currently, investors are forced to factor inflation into theirlong-term decisions. This already speculative endeavor has become even riskiergiven Washington’s unsustainable spending habits and untested monetary policy.This bill would remove that uncertainty, potentially leading to higher levelsof investment, an improved capital stock, and ultimately, greater economicgrowth. Moreover, by allowing taxpayers to realize the true gains from theirinvestments, H.R. 2945 will ease the path toward building wealth for theirfamilies. As we witnessed in 1997 and 2003, policies that reduced the burden ofcapital gains taxation led to increases dramatic increases in household networth.
Capital gains taxationis 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 mayengender a variety of different opinions, inflation-indexing of capital gainsshould be something every Member of Congress, regardless of party affiliation,can support. Such was the case when wide bipartisan majorities backedindexation of tax brackets and exemptions in the 1980s, and so it should betoday. NTU encourages your fellow Members to cosponsorand work to pass this much-needed reform.
Sincerely,
Brandon GreifeFederalGovernment Affairs Manager