[Congressional Record Volume 153, Number 45 (Thursday, March 15, 2007)]
[Senate]
[Pages S3203-S3204]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. INHOFE:
  S. 892. A bill to amend the Internal Revenue Code of 1986 to provide 
for the indexing of certain assets for purposes of determining gain or 
loss; to the Committee on Finance.
  Mr. INHOFE. Mr. President, I rise today to introduce the Capital 
Gains Inflation Relief Act of 2007. The taxation of inflation is one of 
the most unjust practices of the tax code. This simple improvement will 
not only enhance the basic fairness and efficiency of the tax code, but 
will also immediately increase the net return on capital investment.
  Under current law, a taxable capital gain occurs whenever a capital 
asset is sold at a price higher than the original purchase price. 
However, the timing of capital gains taxation sets it apart from other 
types of income. While wages are generally taxed on a yearly basis, the 
taxation on capital assets occurs at the time the capital asset holder 
chooses to sell his asset and realize

[[Page S3204]]

his gains. The gains on capital assets accrue over the course of the 
asset's life, which is usually many years. This is generally favorable 
to the capital asset holder, because he can defer taxation on his gains 
to a future year. This tax deferral is often cited as the primary 
reason for holding assets long term.
  However, the value of tax deferral is often times overstated because 
current tax policy taxes the capital asset holder not only on real 
gains, but also on gains due to inflation. This creates a situation 
that is patently unfair to the American taxpayer. For example, an 
American who purchased a share of stock for $10 in 1950 and sold it for 
twice that amount today would be subject to capital gains taxes on the 
nominal gain of $10, though the transaction was a clear loss when one 
accounts for inflation. Why should an American taxpayer, who invested 
in a capital asset in his youth, be forced to pay capital gains taxes, 
on what can only be viewed as a loss, in his later years? In spite of 
all our efforts to curb inflation, it will remain a fact of life. This 
does not mean we should tax hard-working Americans with long-term goals 
on gains that are due to inflation, gains that they will never actually 
realize.
  Without an inflation index, the tax code incentivizes short-term 
speculation and discourages long-term capital investment. The current 
turmoil in the subprime lending market is an example that demonstrates 
the perils of emphasizing short-term speculation over long-term capital 
investment. Though inflation has remained relatively modest recently, 
there is no guarantee of future stability. Inflation indexing would 
instantly increase the net return on capital investment and 
consequently encourage more of it. Inflation indexing would also 
restore core principles of sound tax policy such as ``horizontal 
equity,'' wherein two taxpayers in identical situations are treated 
identically by the tax system. Indexing capital gains would improve the 
basic fairness of the tax code with only a minor increase in 
administrative costs and a single step of simple multiplication for 
taxpayer compliance.
  The need for indexing is clear. It would help average Americans and 
improve tax policy by enhancing both the basic fairness and the pro-
growth incentive of the tax code. The merits of the capital gains tax 
are themselves debatable, but if we are to tax capital gains let us 
make sure they are taxed fairly. Please join with me in supporting this 
legislation to free the American taxpayer from the unfairness of the 
current tax policy.
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