President Donald Trump should follow up on his historic "big, beautiful" tax bill with an extra booster shot for the economy by immediately indexing the capital gains taxes for inflation.
There is a reasonable chance he can do this without having to go through Congress. And our sources in the administration tell us Trump is interested in doing just that.
The tax on inflationary gains is patently unfair.
Consider a middle-class investor who bought a stock at the start of the Biden presidency for $10,000 and sold it off four years later at a valuation of $12,200. The investor would pay a tax of about $400 on the "gain" of $2,200. But over that time period, prices of everything rose on average by 22%, thanks to Bidenflation, so the investor didn't really gain anything.
In this way the 23.8% (20% plus the 3.8% Obama add-on investment tax) cap gains tax on the sale of a stock, business or property can rise to 50%, as during the Bidenflation years, or even above 100% if inflation gets into double digits, as in the 1970s. Back then, many investors paid a tax even when they sold investments that lost money.
Presidents dating back to George H.W. Bush have toyed with the idea of an executive order to end this unjust inflation tax. Lawyers have always talked them out of it.
But Trump has proven time and again that he goes boldly where previous presidents wouldn't. When the flocks of starch-white-shirt legal eagles and the tenured swampy political pros advise no, he routinely responds: Why not?
Trump could order the Treasury Department to properly define a "capital gain" as any increase in the value of a stock or property after inflation-adjusting from the time of the purchase of the asset to the time of the sale. In that case, the real rate of tax on capital gains would fall, and investment would rise. And tax revenues would RISE!
We have decades of evidence that when the tax on capital gains is lowered, the government gets more revenue. Under current law, the best way to avoid paying ANY capital gains tax is to hold on to the asset for as long as possible. This is called the "lock-in effect of the cap gains tax." Investors refuse to sell old stocks not because they expect a higher rate of return but to avoid paying the tax penalty.
Inflation-adjusting the tax would instantly inspire a selling of old assets and then inject potentially hundreds of billions of dollars of fresh capital into promising entrepreneurial startups that could grow and expand to be the next generation of Microsoft, Nvidia, or Walmart.
Indexing the capital gains tax is a no-brainer for the economy, but it's a political winner too. Seniors -- millions of whom are asset-rich but income-constrained -- would have an open window to sell stocks or other property that have risen in value, but the inflation tax makes selling unattractive.
Farmers whose land has appreciated over 20, 30 or even 40 years would also be able to cash out for their retirement years at a much lower tax rate and then live out their dreams.
The media and the greed and envy crowd would shout "tax cuts for the rich." But IRS data shows that more than two of three tax returns reporting capital gains have incomes of less than $200,000. That's not rich.
Outside of Washington, Trump would get a hero's welcome if he issued an executive order immediately indexing gains. How could Democrats defend such a punitive tax?
There's no guarantee Trump would win in the courts, but even if he loses, he wins. So go for it, Mr. President.
Stephen Moore is a cofounder of Unleash Prosperity and a former senior economic adviser to Donald Trump. His new book, coauthored with Arthur Laffer, is "The Trump Economic Miracle."
Join the conversation as a VIP Member