Two Senate Committee chairs wrote to Treasury to tell them to cut capital gains tax liability by adjusting calculations of basis to account for inflation. The two Senators argue that it is unfair to include gains due to inflation in the calculation of taxable gain. They also noted that adjusting capital asset basis to reflect gain due to inflation would help with the GOP priority of making housing more affordable.
Sens. Ted Cruz (R-TX), chairman of the Senate Commerce Committee, and Tim Scott (R-SC), chairman of the Senate Banking Committee and also a member of the Finance Committee, wrote to Treasury Secretary Scott Bessent, saying Treasury has the power to adjust basis rules that would result in gains due to inflation being eliminated from the calculation of overall capital gains tax liability. Separately, eight House Republicans also sent a letter to Treasury. The letter echoed the arguments made by Sens. Cruz and Scott.
However, the power to cut capital gains tax by using basis adjustment rules is a controversial topic. While some argue such a move is well within the agency's regulatory authority, others say such a move would require new statutory authority that only Congress can provide.
Sens. Cruz and Scott also point to a lower capital gains tax liability as a good way to achieve more affordable housing. It would be "the single most pro-growth economic action the Administration can take unilaterally, and it would boost savings, spur investment, and create jobs nationwide," the Senators said.
Prospects: Indexing capital gains for inflation is an idea that has been kicking around for years. But implementing it would be expensive (unofficial estimates put the cost at hundreds of billions of dollars) and the benefits would largely go to higher income taxpayers. Whether it can be done by regulation as opposed to legislation is also in dispute. So it is by no means a slam dunk tax cut idea. Whether President Trump endorses the idea--something that could happen in the Administration's FY 2027 budget proposal--will likely influence whether the idea actually comes into play.
NAIFA Staff Contacts: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org