Who gains from indexing capital gains to inflation and by how much?

As most of you likely know, Trump's Treasury Department has floated the idea of indexing capital gains to inflation, thereby reducing the tax due from owners of stocks and other investments when they sell those investments at a gain. (The administration has even suggested that this change could be done administratively, without congressional approval.) As this article by Christopher Ingraham explains, "[t]he change would allow investors to account for inflation in calculating how much they’ve profited off an investment, a change that would typically reduce the total amount of taxable profit." Ingraham refers to this Wharton school study showing that this change in law would overwhelming benefit the top 1/10th of 1% of U.S. earners (whose annual income would, on average, rise by 1%), while adding $102 billion to the deficit over the next ten years. Check out the table below, which shows, among other things, that that those in the top .1% in adjusted gross income would receive over 63% of the tax cut. On the other end of the spectrum, the lowest 80% of all earners would get just 1% of the tax cut.

Distributional effects of indexing capital gains to inflation, 2018

AGI percentile Share of tax cut received Percent change in after tax income Share of federal tax burden
Current law Tax cut
0-20 0.0% 0.00% 0.2% 0.2%
20-40 0.0% 0.00% 0.9% 0.9%
40-60 0.1% 0.00% 5.8% 5.8%
60-80 0.9% 0.00% 16.5% 16.6%
80-90 1.5% 0.01% 15.9% 16.0%
90-95 2.5% 0.02% 13.0% 13.0%
95-99 8.9% 0.07% 19.1% 19.1%
99-99.9 23.0% 0.30% 15.0% 14.9%
99.9-100 63.1% 0.98% 13.6% 13.5%


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