HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.
![handle is hein.taxfoundation/srehxz0001 and id is 1 raw text is: TAX m
FOUNDATION
April 1995
Number 4 7
Issues in the Indexation of Capital Gains
A capital gain occurs, in general, when a
taxpayer sells an asset for a price that exceeds
the puirchase price. Indexing capital gains
means adjusting the dollar value of an asset's
purchase price (usually upward) for inflation.
This procedure reduces the amount of a capital
gain subject to taxation.
Historically, U.S. taxpayers have had to pay
taxes on capital gains that result solely from in-
flation. This practice has led, in many instances,
to effective tax rates on inflation-adjusted capital
gains that substantially exceed 100 percent.
figure I illustrates, for an average stock
purchased in June of different years and sold in
June of 1994, how much of the current capital
gains tax results from real versus inflation-in-
duced gains. The average stock, as alble I de-
scribes, is represented by the value of the Stan-
dard and Poor's Index of 500 stocks in Jtinc of
each year from 1954 to 1994. Therefore, the
fraction of the capital gains tax that is on real
gains fluctuates, depending upon both the real
and inflation-induced price of the stock at the
time of purchase date and sale date.
Figure I
The lax on Real vs. InJlaliouarj', (Ca)itcd (el(s (a A ver(ige Slock
(Stock Bought in.June ofI)esigj4i1ec/ Year and Sold in Jure of 994)
$30
$25 [] Tax on Inflation
$25] Tax on Real Gain
$20
$15
$10
$5
$0
C w M ) 0 o T M C D r 00 Md0 0 i m n C.D m o 0 0 w f-- w o N 0 )
Lo MC Lo o) oC Lo (D M (D (o (D CM eD (D (D (D N D C D C C D C D C D 0-) 0 ) 0
Suce litX I OunLa(tiOn.
1l), A')lhtr P illl, 1b.1.
,S'lior 1'cllnlliSI;
7'ax lFoundalioli](ViewImageLocal?handle=hein.taxfoundation/srehxz0001&div=1&collection=&method=preview&ext=.png&size=3)