Should the capital gains tax be adjusted for inflation?

Discussion in 'Budget & Taxes' started by kazenatsu, Dec 31, 2021.

  1. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Right now, if you buy a house for $100,000, and the real value of that house does not change but there has been a 10% rate of inflation, then by the time you sell that house the price will be $110,000. You will not have made any real profit on that purchase and sale. The money you paid for it is now worth the same amount you are getting back. Yet capitol gains tax comes in and tells you you have to pay taxes on that $10,000.

    Let's say the capitol gains tax is 15%, you will now have to pay $1,500.

    Why should you have to pay this?

    (There are already sales taxes and property taxes, so it's not like you didn't have to pay any taxes for buying/owning that house)
    Why should you have to pay higher taxes just because there has been more inflation?

    Should the capital gains tax be adjusted for inflation, so you only have to pay a tax on what you actually made in real profit?

    This capital gains tax (unadjusted for inflation) seems to be like a tax directly on wealth and property, and there are several reasons why that is not a good or fair thing.
    In fact there is even a special unusual provision in the US Constitution to try to curtail direct taxes (which include taxes directly on property; as opposed to transactions). While I'm not sure this would actually literally constitute a "direct tax on property", it certainly seems to violate the spirit of that clause in the Constitution, making the normal transactional tax dependent on how long the property was held.

    It seems this could also misincentivize the government to want to create more inflation to raise their effective tax rates.

    There is already another way this happens (see thread here: Tax rates are going to be going up on all levels of the middle class ), so wouldn't we want to minimize this as much as possible?
     
  2. James California

    James California Well-Known Member Past Donor

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    $ ~ There should be no capital gains or inheritance tax at all. The wasteful spending in government will only stop when there is less to spend. ✔
     
  3. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You can feel that way (and that would probably be an argument for another thread),
    but I am talking about a specific argument for the capital gains tax to be adjusted for inflation. Or perhaps if you prefer to view it from a little bit of a different perspective, the capitol gains tax should be reduced so that it only counts gains in actual income rather than counting inflation too.

    I think that even many people who believe there should be a capital gains tax can agree that the capital gains tax should be adjusted for inflation.

    This is really a separate argument from the argument that there should be no capital gains tax.

    If I bought something for 100 and later sold it for 110, I have not really come out ahead or got any benefit if that money is now worth 10 percent less. There is no real profit received here. Yet the capital gains tax would take money from me.

    Doesn't it seem reasonable that the tax should only be on actual income?
    Having more money due to inflation, when that money is not actually worth more, is not real income.
     
    Last edited: Dec 31, 2021

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