Entrepreneurs Support Indexing Capital Gains Taxes for Inflation

By SBE Council at 19 July, 2019, 4:40 pm

SBE Council Sends Letter to Secretary Mnuchin Encouraging Administrative Action

NEWS

For Immediate Release

Washington, D.C. – In a letter delivered to U.S. Treasury Secretary Steven Mnuchin this week, Small Business & Entrepreneurship Council (SBE Council) president & CEO Karen Kerrigan expressed small business support for using the department’s regulatory authority to modify the calculation of capital gains for tax purposes to include the costs of inflation. The letter noted the importance of indexing capital gains for inflation to U.S. capital formation, investment and entrepreneurship.

In the letter, Kerrigan wrote:

“Taking the reasonable step of including an inflation adjustment in determining capital gains would boost incentives for entrepreneurship and investment, and unlock financial capital to be reallocated more efficiently. That would be good news for the creation and development of businesses, and for economic growth in the near term and over the long haul.”

SBE Council has long supported reducing and eliminating capital gains taxes, as the levy acts a restraint on business creation and development, and diminishes economic, income and employment growth. The indexing move would strengthen U.S. competitiveness in terms of attracting and retaining capital and investment.

The letter provides an example of the damaging effects of inflation, as it increases the real capital gains tax rate. It also points to literature and analysis that shows the Treasury Department has regulatory authority to index capital gains for inflation.

Opponents of lowering capital gains taxes or indexing capital gains for inflation say it will largely benefit the rich, but as SBE Council has pointed out time and again, taxing capital gains means reducing the resources available for (and diminishing the incentives for) undertaking the risky endeavors of starting up, operating and investing in a business. On indexing, the letter notes that that “the economic wisdom of indexing capital gains for inflation is not seriously in dispute.”

The Trump Administration is considering taking action on indexing capital gains for inflation, and again, SBE Council believes the Treasury Department has the authority to do so.