James Pethokoukis

Politics and policy from inside Washington

An obvious tax cut

August 31, 2010

Josh Barro of the Manhattan Institute give a wonderful explanation of the wisdom of indexing capital gains taxes for inflation. Here is  a taste:

But 2011 would be a good time to revisit indexation. First, this could help offset the negative economic effects from the likely rise in the top capital gains rate from 15% to 20%: taxpayers would face higher capital gains tax rates, but they would know that they are protected from tax on inflationary gains. Also, low inflation makes this an opportune time to introduce indexation, as the revenue loss from indexation is linked to the inflation rate, and would therefore be lower than usual.

The fiscal impact of indexation could be reduced by applying it also to the deduction side of the tax code, notably including the mortgage interest deduction. This would mean that only the portion of home mortgage interest in excess of the inflation rate would be deductible. Again, low inflation rates make this a politically opportune time for such a reform, because the near-term effect on tax bills would be small.

Comments

Obama needs to jack up the tax rate on the top 2% of wealth to the 1970s level

Posted by STORYBURNthere | Report as abusive
 

STORYBURNthere: I suppose you want the 1970s economy too – high inflation, low growth, incompetent government (Ford / Carter), sky-high energy prices, disco music ad nauseum. I’ll take Reaganomics any time, thanks.

Posted by Gotthardbahn | Report as abusive
 

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