Donald Trump’s renewed pledge to “Make America Great Again” requires nothing less than reigniting economic growth and prosperity. Wealth creation is essential. Yet as Congress prepares to extend and expand upon Trump’s landmark Tax Cuts and Jobs Act of 2017, he can take matters into his own hands by issuing an executive order to index capital gains for inflation.
Taxing inflationary “phantom” capital gains is an unfair and ill-advised policy that punishes risk and success.
Consider this: You invest $1,000, and after four years of Joe Biden in the White House, you sell that investment for $1,100. But since inflation raged during Biden’s tenure, the $1,100 you receive will be worth less in real terms than the $1,000 you invested. And yet, under current law, you will pay a tax on your $100 capital “gain.”
Talk about perverse!
“As has been well documented,” writes Alan Auerbach, University of California economist, “realized capital gains may be subject to tax rates that easily exceed 100% of real gains in the presence of inflation.”
But it’s the law. And not only would eliminating it be the fair thing to do for investors, it would ignite a surge of American prosperity.
Eight years ago, the late Treasury economist Gary Robbins estimated that indexing capital gains for inflation would, by 2025, create an additional 400,000 jobs, grow the U.S. capital stock by $1.1 trillion and boost GDP by roughly $500 billion. Because capital gains were never indexed, average household income today is $3,600 lower than it could have been otherwise.
However, it’s never too late to start doing the right thing.
Congress has repeatedly toyed with indexing capital gains. In fact, indexing capital gains used to be a bipartisan issue. In the early 1990s, congressional Democrats touted indexing as an effective way to boost economic growth and benefit workers.
“If we really want to increase growth,” said a youthful Chuck Schumer, the then-future Senate minority leader, “there are proposals that we can do. I would be for indexing all capital gains, savings and borrowings.”
Having mastered the ways of the D.C. swamp, Schumer now opposes indexing capital gains. Listen to Congressman Schumer, not Senator Swamp.
Indeed, as Trump emphasized in 2019, “Indexing is something that a lot of people have liked for a long time. It’s something that would be very easy to do. It’s something that I am certainly thinking about.”
Looking forward, the Congressional Budget Office estimated last month that federal capital gains tax receipts will total $2.8 trillion over the decade ahead. If only one-fourth of those tax receipts—a conservative estimate—are due to taxing phantom gains, American taxpayers will pay $700 billion in taxes on income that doesn’t exist.
Opponents of capital gains indexation say the subsequent revenue loss would be too great. But inasmuch as inflationary gains should not have been taxed in the first place, a revenue loss is a good thing. It represents the correction of a tax injustice.
The second-order effects that Robbins documents should remove any reservations based on revenue loss. Without the federal tax on inflationary gains, asset prices will adjust until they reach a new, higher equilibrium. Investors will see their portfolios appreciate bigly.
It’s a safe bet that millions of American investors and pensioners would choose a Dow Jones average of 50,000 with indexation over a Dow Jones average of 44,500 without indexation.
As taxpayers realize real capital gains, the federal government will collect billions of dollars in new tax revenue. Federal tax revenue may ultimately be higher with indexation, not lower.
There is the question of whether Trump has the legal authority to issue an executive order instructing the Treasury secretary to issue new regulations indexing the capital gains cost basis for inflation. It comes down to whether the governing Internal Revenue Code section covering the definition of the word “cost” is sufficiently ambiguous to allow regulatory reinterpretation. Congress never specifically mandated that “cost” was to be determined in nominal terms, nor did it prohibit the use of real valuation.
According to a watershed 2012 paper by Charles Cooper and Vincent Colatriano in the Harvard Journal of Law & Public Policy, “jurisprudential developments over the last two decades have confirmed . . . that Treasury has regulatory authority to index capital gains for inflation.” With that justification, Trump has little reason to hold back.
James Carter is a contributor to The Daily Caller News Foundation and a principal with Navigators Global. He previously headed President Donald Trump’s tax team during the 2016-17 transition and served as a deputy assistant secretary of the Treasury for then-President George W. Bush.
When the Supreme Court was debating the landmark Dobbs abortion case, Senate Majority Leader Chuck Schumer shouted threats (“you will reap the whirlwind…”) at them from the courthouse steps. Thus, the last doubt was obliterated that the unquestioned authority of the Court was under serious attack.
An independent judiciary is the key to maintaining our constitutional republic. It is the reckoning mechanism which keeps us on track, muting the potential excesses of popular democracy. Americans once understood this and valued our judiciary, even when it sometimes worked against their individual interests.
But the times, they are a’changin. Americans have now divided into warring classes who believe that in the pursuit of power and short-term goals, a conscientious judiciary is often in the way.
At least until recently, school children were taught that our founders, in order to dilute the power of centralized government, created three branches. The legislative makes the laws, the executive branch enforces the laws, and the judiciary ensures that laws are enforced in accordance with statutes and the Constitution.
In the 1930s, Franklin Roosevelt clashed with the Supreme Court when their rulings thwarted his plans to assert federal control over wide swaths of the American economy. The Justices could not find in the Constitution’s list of enumerated powers any which authorized the New Deal legislative barrage.
They were right, but Roosevelt’s response was to propose “packing the court,” expanding the number of Justices, and increasing his power. Roosevelt’s view of the court as an obstacle rather than a necessary guard rail shocked many Americans of the day. The plan eventually failed, although most of the New Deal was enacted anyway.
Yet the status of the judiciary branch in our federal system is showing deterioration today. Leftist ideologues conduct protests of court decisions in front of Justices’ residences when they render unpopular decisions. That’s clearly contrary to federal law yet they suffer no repercussions. The Biden Department of Justice simply ignores them.
Justices are personally harassed by activists. Angry partisans confront them and their families in restaurants and public spaces. The Justices, particularly those of the pro-Constitution persuasion, are faced with spurious charges of ethical violations and demands for recusal. That’s especially ironic in the case of Justice Clarence Thomas, who has a well-deserved reputation for willingness to vote against his own political positions.
The Arizona Supreme Court also passed down a controversial abortion decision, ruling that the Arizona legislature, following the reversal of Roe, had effectively reinstated a restrictive Civil War era law. In response, a special interest group known as “Vote Them Out” is attempting to remove justices Clint Bolick and Kathryn King for failing to support their pro-abortion policy agenda.
In Arizona, Supreme Court Justices and most lower court judges are not elected but appointed and then undergo periodic retention elections which are intended to weed out incompetent or corrupt judges. Although few judges are not retained, the system works to depoliticize the judicial selection process and give voters input into keeping judges.
It is this retention system itself which Vote Them Out is attacking by forcing Bolick and King to, in effect, run for their own seats in a political style campaign. There are no credible arguments that either Justice is incompetent or corrupt or that they didn’t provide constitutional authority for their rulings. The issue, again, is simply that their decision was unpopular, at least with Vote Them Out.
As Justice Bolick pointed out in an Arizona Republic op-ed, judges in a merit system are handicapped in a politics-based election. They can’t personally raise funds or seek endorsements. They have strict ethical limits on what they can discuss. Their opponents have no such restraints.
It’s telling that justices at all levels are commonly referred to as “liberal” or “conservative.” Such political labels should only matter if justices are policymakers, which they are not. The critical descriptor which matters for justices is “pro-Constitution” versus “pro-some interest group’s opinion.”
Americans seem to have little regard for the values and institutions which are the foundations of our own national greatness. Our independent judiciary distinguishes us from corrupt autocracies everywhere and throughout time. We disrespect it at our own peril.
Dr. Thomas Patterson, former Chairman of the Goldwater Institute, is a retired emergency physician. He served as an Arizona State senator for 10 years in the 1990s, and as Majority Leader from 93-96. He is the author of Arizona’s original charter schools bill.
Are you considering voting for a Democrat, or not voting for a Republican because you think they’re crazy?
If you’re someone who votes according to the “candidate I like,” rather than the political party, consider what RESULTS your vote will bring to America, Arizona, and your family. A candidate’s likability and respectfulness mean nothing if their actions bring destruction.
You may like a Democrat as a person, and they may seem “reasonable” compared to the Republican alternative, but gone are the days when you could assume both parties have the same goals for America with different ideas to achieve them. Today’s Democrats have the opposite vision for America than Constitutional Republicans.
What is your vision for America, for your everyday life, for your family’s well-being? Don’t give your vote to a politician who will dismantle and eventually destroy your vision. Check the voting record and statements of ANY Democrat. (I’m not saying every Republican is wonderful; only that they will at least do far less damage than any Democrat.) Think I’m exaggerating? Look at what Democrat ideas have done to your daily reality:
THIS is what EVERY Democrat represents—no matter how “reasonable” a person they seem to be. Just look at the results of President Biden, Chuck Schumer, Nancy Pelosi, and virtually every Democrat in power—including every Congressperson. And don’t forget about Mark Kelly who ran as a moderate but votes 94% of the time with Democrats. Mark Kelly = Joe Biden. Katie Hobbs = woke insanity.
This is a different America than we had 20, 10, or even 1 year ago. And the main reason is a Leftist “long march through the institutions,” (Christopher Rufo) and a long strategy grounded in communism and socialism which has overtaken the Democrat party, big business, education, culture, law, and even medicine. Think about it. This is not the America we could have imagined even a few years ago.
“A disastrous and shaming flight from Afghanistan is described by President Joe Biden as ‘a triumphant success,’ while Dr. Anthony Fauci retires with dignity after doing terrible damage to the country with his nonsense about shutting schools, ‘droplets,’ the ups and downs of masking, the ‘abolition of hand-shakes’—almost all of it now thoroughly discredited.
Six years ago, no one could have imagined that these outrages would have occurred, much less that they would be accepted by a bedraggled, degraded, demoralized United States, its federal government in the hands of lawless and authoritarian myth-makers, applauded by the complicit national political media. Can this be America?”
What will your kids and grandkids experience if we keep putting Democrats in power?
It will only get worse.
That’s why a return to Constitutional Americanism is the only way to restore sanity, dignity, productivity, and hope to America.
And the surest way there is to elect Republicans (no matter how flawed one may be) to replace the destructive RESULTS of Democrats (no matter how nice one may seem).
Kim Miller is the President and Founder of Arizona Women of Action. You can find out more about their work here.
