Examples

Example 1

Elderly Homeowner

A woman who bought a house in 1975 for $40,900, the average home price in the U.S. that year. If she sells it this year for the 2022 average price of $507,800, she’ll have a nominal (unindexed) gain of $466,900. Even with the $250,000 exclusion on the sale of primary residences, she’ll owe capital gains taxes on $216,900. At the 15% capital gains rate middle class taxpayers pay, she’ll owe the IRS $32,535 – which may preclude her from selling the house and moving to a retirement community. But if that 1975 price were adjusted for inflation, her basis in the house would be $184,283, not $40,900. Her capital gains tax would be $11,028 – a third of what she’ll pay under the current system. Her “gain” is almost entirely the artificial result of inflation. That’s not fair.

Example 2

Farmer

Owning property, caring for it well, and leaving it as a legacy for the next generation, is the greatest source of pride for farm families. But tax policy makes discourages it. In 1970 a family bought a 445-acre farm (national average farm size) for $87,000 (national average that year, $196 per acre). They worked hard for 50 years to improve it, then sold it in 2020 for $1.4 million (national average that year, $3,160 per acre), so they owed capital gains tax on over $1.3 million. At the 20 percent capital gains rate, that meant $264,000 in taxes. But much of that price increase is due to inflation. If their original basis had been adjusted for inflation, it would have been $456,000, not $87,000, and their capital gain would have been $950,000, not $1.3 million. Their tax would have been $190,000, not $264,000. Congress’s failure to index capital gains cost that family nearly $75,000, based entirely on artificial paper gains caused by inflation. That’s not fair.

Example 3

Suburban Family

Over 65 percent of middle-class working Americans (those earning $40,000-90,000) own stocks. The median stock value held by American households is only $40,000, but together with their homes, it represents the life savings for millions of families. In fact, families headed by wage earners aged 45 to 54 own more than 58 percent of all stocks in America. Much of that is in IRAs and 401(k)s, but 13 million families also own stocks directly, not through mutual funds or retirement accounts. They often invest to grow college funds for their children, and to create better lives for the future. But they risk losing a substantial portion of those savings to capital gains taxes, solely because of inflation. Millions are prevented from selling stocks to pay for college because of the tax. That’s not fair.

Example 4

Suburban Mother

A very shrewd woman bought her home in the Denver suburbs at the bottom of the market in 2010. The average home price in the metro area that year was $260,000, but in 2022 (April) that average is a staggering $918,850 (higher than New York City). In the last two years, home prices in Denver have gone up 3.2% per month, and the median home price increased over $100,000 in one year (Colorado Realtors Assn). She got married and the couple now files joint tax returns, but their capital gain is still far beyond the primary residence exclusion. If they sell now, they will owe $31,770 in capital gains taxes (if she were still single she would owe $82,770) – even though 100% of that gain is due to inflation, and none of it represents any increase in actual purchasing power. That’s clearly not fair.

Who We Are

Inflation Tax Relief is a joint project of the National Taxpayers Union and The Armstrong Project utilizing research from leading economists Art Laffer and Steve Moore and backed by Laffer Associates.

National Taxpayers Union

NTU is the “Voice of America’s Taxpayers.” We work for a simple and fair tax system that enables prosperity for all and respects taxpayers’ civil rights, lean and efficient government services and regulations, sustainable fiscal policies to avoid national bankruptcy, and permanent limits on taxes, spending and debt.

Laffer Associates

Laffer Associates is the culmination of a lifetime’s worth of rigorous institutional and academic economic research by the firm’s founder and chairman, Dr. Arthur B. Laffer. For more than 35 years, Dr. Laffer has dedicated his distinguished career in economics to developing original works and proprietary models that analyze and forecast how economics affects the real world.

The Armstrong Project

The Armstrong Project is a series of new initiatives led by Wil Armstrong, to preserve the historical record of his father, Senator Bill Armstrong, and especially to build on his important work for faith, family, and freedom. Preserving history is important, especially in an era when so many Americans have forgotten our founding principles.