The Small Business and Entrepreneurship Council are among several groups asking President Donald Trump and Treasury Secretary Steven Mnuchin to index capital gains to inflation.
In a letter to Trump and Mnuchin, the coalition, which includes the SBE Council, as well as conservative groups including the Club For Growth, Americans for tax reform, Heritage Action, and Freedom Works, commended them for leading the passage of the Tax Cuts and Jobs Act of 2017.
“To follow up on that success, we write to strongly recommend that you use your executive power as president to end the tax injustice that is currently included in the computation of capital gains. Specifically, we request an Executive Order that would index capital gains to inflation so that taxpayers do not pay taxes on “phantom” gains,” the coalition wrote.
They argue that since regular income tax brackets were indexed to inflation over 30 years ago, it’s only fair to do the same for capital gains.
“For example, if someone saving for retirement purchased an S&P index fund for $1,000 in 2008 and dutifully held it for ten years, they could now sell it for $1934,” they wrote. “That’s a gain of $934. Unfortunately, the full amount would be subject to taxation. But $168 of that $934 isn’t a real gain at all. It’s phantom income that was eaten away because of inflation. And yet, taxpayers are currently forced to pay taxes on this nonexistent income.”
An executive order to remedy this would help the economy, they added.
“The real after-tax rate of return on all equities would immediately be priced higher – thereby increasing the wealth held by the millions of working and retired Americans who own 401ks, IRAs, mutual funds, and brokerage accounts,” they said. “It would further encourage people to expand their savings, and incentivize people to start doing so. By preventing the money from unjustly going to the government, it could be re-invested in the economy, allowing businesses to expand, innovate, and create more jobs.”