The idea of indexing capital gains to inflation is resurfacing in the American tax debate. This measure would adjust the tax basis of assets so that taxes apply only to real gains and not to appreciation due to inflation. Currently, the top long-term capital gains rate is 20%, plus a 3.8% net investment income tax for high earners, while short-term gains are taxed at ordinary income rates reaching 37%. According to Tax Foundation analysis, the top quintile of taxpayers would see an after-tax income boost of 0.6% by 2036, compared to less than 0.05% for the bottom quintile. Implementation challenges include the complexity of tracking cost basis for dollar-cost averaging and dividend reinvestments, as well as the risk of creating larger realized losses on declining assets. Despite the recurring interest, the proposal is unlikely to gain political traction in the near future.
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