Although the ink is barely dry on the massive tax and spending package that will add more than $4 trillion to the national debt over the next decade, some Republicans are calling for another major tax cut. As The Washington Post’s Jeff Stein reports Thursday, anti-tax activists want the Trump administration to embrace a change in the way capital gains are taxed, a move that would benefit investors.
One of the groups pushing for the change is Americans for Tax Reform, an advocacy group founded in 1985 by the hugely influential anti-tax activist Grover Norquist, who has long called for changing the way capital gains taxes are calculated. Currently, capital gains are measured in nominal dollars, with no adjustment for inflation. The proposed change would allow investors to reduce their gains by the rate of inflation — an adjustment that would reduce taxes owed, especially for investors who held their investments over long time horizons.
Making the change would require an act of Congress, according to an analysis by the Justice Department from the early 1990s. But as Stein reports, conservative groups are pushing for the Treasury Department to make the change on its own, without consulting lawmakers. A Republican senator has reportedly spoken to Treasury Secretary Scott Bessent about the idea.
If the Treasury option fails, Republicans could include the policy change in a second tax bill later this year or early next year.
Norquist told Stein that he has spoken to President Donald Trump about the issue, arguing that he could institute the change via executive order. “I said something like, ‘Mr. President, after we do the bill, we will need more economic growth. The Big Beautiful Bill is very pro-growth, but with this, we can have even more growth,’” he said. “The bureaucracy stopped him the first time, but they can’t this time.”
Regardless of how the policy change might occur, economists say it would be costly for the federal government. Studies done during the first Trump administration found that indexing capital gains to inflation would reduce revenues by between $100 billion and $200 billion over 10 years, Stein says. The benefits would flow overwhelmingly to the already wealthy, with the top 1% claiming about 86% of the proceeds.
Critics say the change would do little to boost the economy, and it would likely face legal challenges if it were implemented via executive fiat. But potential economic benefits may not be the primary concern. Norquist made it clear long ago that tax cuts serve a larger purpose in his battle against big government. “I don’t want to abolish government,” he famously said in 2011. “I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”