• Posts
  • RSS
  • ◂◂RSS
  • Contact

  • Capital Gains and Inflation

    November 22nd, 2013
    inflation, money  [html]
    Dollars become worth less over time, but we don't adjust capital gains rates to take this into account. If you invested $1,000 fifteen years ago and cashed out yesterday at $1,433 you didn't actually make any money: inflation over this time period was 43%. [1] The IRS doesn't see it this way, however, because they don't adjust for inflation. To them you gained $433 and owe 15% of that as tax. The higher inflation is, the more imaginary gain the IRS sees, which means there's substantial pressure from people who make money from investments to keep inflation low.

    This has been recognized as a problem for a while and the obvious fix would be to adjust for inflation. This seems like a reasonable solution, though it does worry me that we'd be giving the government an additional incentive to understate inflation. Capital gains taxes are ~4% of total federal revenue, or about $0.1T/year, so this seems like it might be enough to pressure the BLS.


    [1] If you had invested in low-fee index funds you would have done better than this, ending up with $1,927. That's a 2% annual return after inflation.

    Comment via: google plus, facebook

    Recent posts on blogs I like:

    Some reasons to work on productivity and velocity

    A common topic of discussion among my close friends is where the bottlenecks are in our productivity and how we can execute more quickly. This is very different from what I see in my extended social circles, where people commonly say that velocity doesn…

    via Posts on Dan Luu October 15, 2021

    EDT with updating double counts

    I recently got confused thinking about the following case: Calculator bet: I am offered the opportunity to bet on a mathematical statement X to which I initially assign 50% probability (perhaps X = 139926 is a quadratic residue modulo 314159). I have acce…

    via The sideways view October 12, 2021

    Meditations on newborns

    [Content: death.]I wrote most of this a couple of months ago when Nora was a newborn, but the first few months are not that conducive to finishing blog posts. New babies put you into a liminal period, both in your own experience and in how others treat yo…

    via The whole sky October 3, 2021

    more     (via openring)


  • Posts
  • RSS
  • ◂◂RSS
  • Contact