::  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:

Trip Chaining, Redux

There’s been an ongoing conversation about how public transport can be used for non-work trips (and what it means for women) that makes me go back to something I wrote in 2012 about trip chaining. In that post I asserted a distinction between long and sho…

via Pedestrian Observations June 13, 2019

Unintended pregnancy in folk songs

I’ve been listening to a lot of the Watersons and Waterson:Carthy this week. It’s reminded me how absolutely full British folk music is of songs about unintended pregnancy. Most commonly the result is unhappy motherhood: “But if I had kent that I now ken …

via The whole sky June 1, 2019

Programmer migration patterns

I made a little flow chart of mainstream programming languages and how programmers seem to move from one to another. There's a more common kind of chart, which shows how the languages themselves evolved. I didn't want to show the point of view of …

via apenwarr March 18, 2019

via openring

More Posts:


  ::  Posts  ::  RSS  ::  ◂◂RSS  ::  Contact