Your grandfather bought a piece of land outside Tulsa in 1978 for $40,000. You sell it today for $180,000. On paper, you made $140,000 — and Uncle Sam wants his cut.
Here’s what the Internal Revenue Service doesn’t care about: a dollar in 1978 bought roughly four times what it buys today. Adjust for inflation and that land barely appreciated in real terms. You didn’t build wealth — you just kept pace with a weakening dollar. And yet you’ll owe capital gains tax on the phantom gain.
That is the long-overlooked unfairness baked into the American tax code. And fixing it doesn’t require an act of Congress.
My old friend Larry Kudlow — economist, former Reagan advisor, and President Trump’s former National Economic Council Director — has been making this case for decades. “I personally have campaigned for inflation indexing of capital gains for at least three decades,” he said in 2019. He was pointing to a specific legal mechanism: directing Treasury to redefine “cost” under Section 1012 of the tax code to mean inflation-adjusted cost. “Many lawyers believe he can,” Kudlow noted of Trump’s authority to act without Congress.
Grover Norquist, president of Americans for Tax Reform, called indexing “the most powerful pro-growth, pro-affordability act the federal government can do this year” in an op-ed published just this week. He’s direct about who actually gets hurt by the status quo — not hedge fund managers, but the retiree who needs to sell a home and move on. With 30 million Americans paying capital gains taxes each year and 63 percent of households owning stocks through IRAs or 401(k)s, this is not a niche issue.
The mechanics are simple. Under indexing, you adjust your original purchase price for inflation before calculating your taxable gain. Buy stock for $50,000 in 2001, sell for $120,000 today — instead of owing taxes on $70,000, you’d adjust that basis to around $87,000 first. You’d owe taxes on $33,000. The real gain. Not a number bloated by 20 years of inflation.
Critics call this a gift to the wealthy. The truth is the people most quietly punished by the current system aren’t the ultra-rich. They’re the small business owner who built something over 30 years and now faces a tax bill that treats the Federal Reserve’s monetary inflation as personal profit. The family trying to pass on farmland without selling half of it to square up with the government.
As Norquist and Sen. Ted Cruz (R-TX) wrote together in RealClearMarkets, “taxpayers are being punished for the mere existence of inflation” — a burden that falls hardest on those who spent decades accumulating modest assets, not those with armies of accountants.
There’s also a growth argument that is essential. When selling triggers a large tax bill, rational investors hold on even when their capital would do more good elsewhere. Economists call it the “lock-in effect” — a freeze on productive capital that could otherwise flow to new businesses, new hires, and new investment. Kudlow argued the reform would drive “much-needed productivity, real worker wages, and overall economic growth.”
Now for the legal objection. In the early 1990s, the Bush administration examined this idea and pulled back. But the legal ground has shifted. A subsequent analysis commissioned by the National Taxpayers Union Foundation concluded Treasury likely has the power, given that Congress never defined “cost” in the statute as nominal. Senators Cruz and Tim Scott (R-SC) have already written to Treasury Secretary Scott Bessent urging him to act, calling it “the single most pro-growth economic action the administration can take unilaterally.” When a statutory term is genuinely ambiguous, agencies have historically had latitude to interpret it. Courts may disagree — but the argument is serious and worth making.
The deeper issue is worth stating plainly. Inflation doesn’t just happen — it’s the direct result of government spending and monetary expansion. Washington created it. When the tax code then treats the distortions inflation produces as taxable income, Americans are charged twice: once by the inflation itself, and again by the IRS. It’s a structural flaw the executive branch has the tools to correct.
President Trump ran on cutting through Washington bureaucratic arrangements that quietly pick the pockets of working Americans. Cruz, Scott, Kudlow, and Norquist have all handed him the blueprint. The legal authority is there. The economic case is solid. As Trump put it simply during his first term: “It can be done very simply. It can be done directly by me.”
Cesar Conda, a former Chief of Staff to former Senator Marco Rubio (R-FL), is a Founding Principal of Navigators Global and an Economic Advisory Board Member of Unleash Prosperity Now.
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