House Republicans are moving to include a provision in their budget reconciliation package that would index capital gains to inflation, a long-sought reform that supporters argue would correct a tax code flaw unfairly taxing phantom gains.
While Senate Republicans have focused on a narrower reconciliation bill to fund the Department of Homeland Security, House leaders see an opportunity to pass a broader package that builds on last year's tax cuts. The move would give the party another pro-growth victory to campaign on ahead of the November elections, according to Alfredo Ortiz, CEO of Job Creators Network and author of “The Real Race Revolutionaries.”
“Republicans’ top tax priority should be indexing capital gains to inflation,” Ortiz wrote. “This long-overdue reform would fix a quirk in the tax code that unfairly requires small businesses, farmers, homeowners, investors, and ordinary Americans to pay capital gains taxes on phantom gains driven solely by inflation.”
The issue dates back to 1986, when President Ronald Reagan indexed income tax brackets to inflation, preventing workers from being pushed into higher tax brackets due to cost-of-living raises. But capital gains were left out, meaning Americans face large tax bills when selling assets even if the real value hasn’t increased meaningfully.
The problem worsened under former President Joe Biden, whose term saw inflation rise 21 percent, according to the article. That translates into significant paper gains taxed as real income—about $200,000 on a $1 million small business, $100,000 on a $500,000 home, or $50,000 on a $250,000 retirement account.
Small businesses and farmers are among the hardest hit, but everyday Americans feel the pinch too. IRS data shows three-quarters of households reporting capital gains earn less than $200,000 annually. Homeowners selling after a surge in housing prices often face inflated tax bills, the article notes.
Indexing capital gains to inflation would unlock capital currently trapped by tax penalties, encouraging businesses, homeowners, and investors to sell and reinvest more efficiently. Supporters say it could boost housing supply for younger buyers, spur small business formation, and increase tax revenue through more taxable events.
While the Treasury Department could act through regulation, such a move would likely face legal challenges and could be reversed by a future Democratic administration. Legislation through reconciliation offers a more stable solution, Ortiz argues.
House Republicans have already moved on related budget items, including advancing the DHS funding bill through the House Rules Panel. The push to index capital gains to inflation aligns with broader GOP efforts to counter rising costs, as March inflation hit 3.5% amid the Iran conflict, stoking political pressure on the Trump administration.
