Senator Ted Cruz’s Proposal to Index Capital Gains to Inflation

By John Ricco

Senator Ted Cruz (R-TX) recently introduced a bill titled the “Capital Gains Inflation Relief Act of 2018”. The proposal would let investors adjust asset cost basis for inflation, resulting in a lower tax bill upon realizing capital gains.

Last month, Penn Wharton Budget Model (PWBM) analyzed a similar policy, finding that indexing capital gains to inflation would cost $102 billion over the next 10 years and benefit primarily high-income households. Senator Cruz’s proposal differs slightly from the policy we scored – for example, it is limited to capital gains on assets held for more than three years, and it uses the GDP deflator rather than chained CPI as its measure of inflation. Nonetheless, these differences are minor, and we feel that our results reasonably describe the budgetary and distributional impacts of Senator Cruz’s bill.

For a full exploration of the economic and administrative considerations surrounding indexing capital gains, PWBM recommends this Congressional Budget Office report authored by Len Burman.