Tax Cuts for the Wealthy Through Indexation

Recently, discussion has been brewing regarding additional tax cuts that would benefit, for the most part, the wealthiest top 1%. According to several news sources, the Trump administration is mulling over whether or not an additional $100 billion dollar tax cut, through indexing capital gains, could be implementing without congressional approval. Though additional tax cuts may be wonderful for the affluent, the increase in the tax gap will have to be filled by something. Some fear that the tax cuts would mean reduction(s) in other benefits (i.e. Social Security, Medicare, and Medicaid) moving forward.

To put this all into perspective consider how indexation works. For example, if you bought a stock for $200.00 dollars in 1980, and today that stocks value is $600.00 dollars. Instead of paying taxes on the $400.00 dollar gain (congruent to current tax law), the purchase price would be adjusted for inflation to $420.00 dollars. This means that taxes would only be owed on $180.00 dollars. The idea is to stimulate economic growth under the supply-side economic theory that posits job creation through investment by assisting the rich save more.

Though supply-side economic theory is sound theoretically, there is little historical data that supports positive economic outcomes from supply-side theory application(s). At least not for the bottom 90% of the population. According to J.G. Gravelle (2018), a senior specialist in economic policy at the Congressional Research Service, “indexing capital gains would not incentivize new investment but rather incentivize savings. Capital gain effects are also limited because of evidence that savings is not very responsive to changes in rates of return.”

Tax savings are always great for the wealthy, however for the other 90% percent of Americans it seems they always pay the price. In addition, at a time when record profits are being reported by multi-nationals and private individuals of wealth, the notion that the public would support such a tax cut seems dubious at best. Also, wouldn’t it be nice to hear of a tax cut for the rest of America. It seems that would do more to stimulate economic growth than provided greater investment (saving) opportunity for the wealthy.

Should you need assistance with a tax liability, capital gains tax issue, tax planning or have additional questions please call 866-606-3570 or visit our website@ []. You will be connected to a licensed tax professional with the skills and experience to provide you the best resolution option offered by the Internal Revenue Service.

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