Some conservatives have called on Treasury Secretary Scott Bessent to use executive authority to index capital gains taxes to inflation after congressional Republicans declined to include such a provision in a major spending bill.
Such a move would undoubtedly face a legal challenge, and questions about its legal durability have prevented past Republican administrations from attempting it.
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The easiest way for conservatives to achieve the goal of indexing capital gains to inflation, a policy that would amount to a tax cut for investors, would be for Republicans to pass it through reconciliation, a legislative process that allows the Senate to sidestep the filibuster and approve legislation with a simple majority vote.
But Republicans left the tax measure out of the two reconciliation legislative packages that Congress previously passed, as well as the third introduced this week. Some in the GOP believe the Trump administration should tackle it unilaterally.
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Grover Norquist, founder and president of Americans for Tax Reform, told the Washington Examiner on a phone call that the move should not be done through Congress, but rather through rulemaking by the Treasury Department.
“I was not in favor of putting it in reconciliation, except as a talking point,” he said.
The idea behind indexing capital gains to inflation is to avoid taxing investors on gains that are in reality just a reflection of rising prices. For instance, an asset that appreciated from $10,000 to $12,000 during a period of 20% cumulative inflation would not face any capital gains tax.
Reps. Kevin Hern (R-OK) and Randy Feenstra (R-IA), both of whom are on the House Ways and Means Committee’s tax subcommittee, told the Washington Examiner they were not aware of GOP lawmakers who had sought to include that specific measure in reconciliation.
Hern noted that the concept has been under consideration for a long time.
“I mean, everybody talks about it, it’d be great if we did it,” Hern said of the idea of indexing capital gains to inflation. “I mean, it seems kind of silly that you pay taxes simply on inflation.”
“I mean, if you think about it, some might argue that you create a lot of inflation to generate tax base,” Hern added.
The House Republicans from the Real Estate Caucus wrote a letter to Bessent this March asking him to consider indexing capital gains. They argued that doing so would help with housing affordability.
“For homeowners in particular, inflation indexing is especially important at a time when housing affordability remains a top concern for American families,” the lawmakers wrote. “Families who purchase a home or small real estate investment often hold that asset for many years or decades. Over long holding periods, a substantial share of the nominal gain may reflect inflation rather than true increases in real value.”
Proponents also argue that indexing capital gains to inflation could boost tax revenue by spurring greater asset sales.
Businessman Steve Forbes wrote an op-ed in Forbes this week arguing that when the capital gains rate has been reduced in the past, revenue from the tax has gone up, as more people are willing to sell.
“Indexation would be a phenomenal tax cut for assets that have been held for years, such as a house,” he said. “The burst in selling assets would generate a gusher of revenue for Uncle Sam. Indexation would also free up capital to be used for new opportunities. It would be a powerful stimulant of economic growth and innovation.”
But critics argue that the Treasury does not have the authority to index capital gains to inflation unilaterally.
Elena Spatoulas Patel, co-director of the Urban-Brookings Tax Policy Center, said in a recent piece that doing so would hinge on Bessent redefining “cost” to mean “inflation-adjusted cost,” which she dubbed a “regulatory sleight-of-hand.”
She said the George H.W. Bush administration considered such a move in 1992 but stopped the effort after the Justice Department and White House counsel said it did not have the authority to do so.
Sen. Ted Cruz (R-TX) appealed to then-Treasury Secretary Steven Mnuchin to index capital gains to inflation in 2019. Mnuchin did not do so and left the onus on Congress to do so legislatively.
Cruz once again called for indexing capital gains to inflation alongside Sen. Tim Scott (R-SC), chairman of the Senate banking committee, earlier this year.
Since then, the playing field has tilted against federal agencies being able to unilaterally implement significant policies. In 2024, the Loper Bright Enterprises v. Raimondo decision overturned what was known as the Chevron doctrine, which essentially directed courts to defer to federal agencies’ reasonable interpretations of ambiguous statutes. Conservatives generally welcomed that ruling, but it could make it more difficult for the Treasury to write policy relating to capital gains taxation.
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Still, proponents hope that the Treasury Department pushing forward could at least get the ball rolling.
“Of course, that would be challenged in the courts by political forces that love high taxes,” Forbes said. “But as people grasp the positive impact of indexation, the tax ruling would generate considerable political support to be passed through legislation, if necessary.”
