President Donald Trump speaks to reporters before boarding Air Force One in Morristown, N.J., August 15, 2019. (Jonathan Ernst/Reuters)

It would fuel economic growth.

President Donald J. Trump set free-marketeers’ pulses racing on Tuesday when he spoke warmly about ending the inflation tax on capital gains. He told journalists in the Oval Office that “a lot of people have been talking about indexing for many years, and it’s something that I am certainly thinking about.”


But just 21 hours later, supply-siders’ blood ran cold.

“I’m not looking to do indexing,” Trump said on the White House lawn Wednesday. “I think it will be perceived, if I do it, as somewhat elitist. I don’t want to do that. I want taxes for the middle class, the workers, the people that work so hard. . . . I think indexing is really, probably better for the upper-income groups. I’m not looking to do that.”

There are superb reasons why President Trump should re-embrace this highly promising reform.

• Ending the tax on phantom, inflationary capital gains is not “somewhat elitist.” Democrats have said so.


Then–House Ways and Means chairman Dan Rostenkowski of Illinois introduced the Economic Growth Acceleration Act of 1992. It cut some taxes and hiked others. But, as Rostenkowski said, it “also promotes fairness by ending the taxation of illusory gains that are actually nothing more than inflation.”


“If we really want to increase growth, there are proposals that we can do,” Representative Chuck Schumer of New York said during the televised debate. Today’s Senate Democrat leader added back then: “I would be for indexing all capital gains and savings in borrowing. And that indeed would shift the balance in this country, away from too much consumption, too much borrowing, and towards more savings and investment over the long run.”

“The capital-gains provisions in H.R. 4287 benefit small business by indexing newly purchased assets,” said Representative Steny Hoyer of Maryland, currently the House’s No. 2 Democrat. “Income gauged would be much more reliable so that real, not inflationary, gains will be taxed, and taxed at the same 28 percent maximum rate on gains.”

Representative Bob Matsui of California said:

It is a very good capital-gains proposal that will help middle-income Americans because what our bill does, it provides for non-taxability of inflationary gains. What that means is if we have 100 percent inflation on a piece of property over a ten-year period, and the cost of that property [was] $100,000, and now it is $200,000, our tax will only be on $100,000, and that is only fair because the inflationary gain, frankly, should not have been taxed at all. That is not appreciation of your property.

(In Matsui’s scenario, the existing law would have slapped the then–28 percent capital-gains tax on this $100,000 “gain” and generated a $28,000 invoice from the IRS. However, since the entire $100,000 “gain” would have been strictly inflation rather than appreciation, indexing would have slashed that liability to $0.00.)

Representative Ronald Coleman of Texas said that this legislation “indexes capital gains to ensure no one will be forced to pay tax due to the effects of inflation.”


According to Representative Peter Hoagland of Nebraska, “the economic growth and job creation incentives in the bill — especially help for small businesses, like indexing capital gains to avoid paying tax on gains attributable to inflation — can help stimulate the economy and put people back to work.”


“I strongly support the plan’s middle-income tax relief. I like the indexing of capital gains,” said Representative Jim Chapman of Texas.

California’s Nancy Pelosi and Vermont’s then-representative Bernie Sanders were among the other Democrats who approved the measure. Alas, a conference committee deleted this capital-gains language.

• Indexing capital gains is middle-class tax relief. “This would directly benefit the 54 percent of Americans who own stocks,” writes Americans for Tax Reform’s Alex Hendrie. “By increasing asset values, this policy would also benefit the 55 million workers who own 401ks.”

In 2016, the latest IRS data indicate, 82 percent of households with capital-gains-tax filings made less than $200,000, and 56 percent made less than $100,000.

• The status quo unfairly discriminates against investment. The IRS adjusts 62 tax provisions for inflation, including the “Treatment of Dues Paid to Agricultural or Horticultural 512(d) Organizations” and the federal “Tax on Arrow Shafts.” (Really.) So, why must capital gains shiver in the rain?


• Indexing should increase federal revenue. Voodoo economics? No. It’s the way the world works. As the tax burden decreases, incentives spur investment and innovation. A smaller slice of a larger pie means more American pie for Washington.

When Congress cut the capital-gains tax in 1997 from 28 to 20 percent, the Congressional Budget Office expected $285 billion in capital-gains-tax revenues through fiscal year 2000. Instead, $374 billion poured in, 31 percent above forecast.

Likewise, when Congress cut this tax from 20 to 15 percent in 2003, the CBO projected $327 billion through FY 2008. Actually, the lower capital-gains tax yielded $537 billion — a 64 percent bonus.

• Most important, every American would benefit if the inflation tax on capital gains were catapulted atop the ash heap of history. Faster economic growth would extend the Trump/GOP boom and avoid a recession or — almost as bad — an enervating return to Obamian stagnation. This would be poison for Trump and Republicans. In 2020, they need to outpace Obama’s flaccid 2.1 percent average annual GDP growth. Anything much below 3 percent would be perceived as failure. Indexing capital gains should avert such a disaster. Far better for the president to be “somewhat elitist” and back in the White House than defeated by an avoidable economic slowdown and back in Trump Tower.