January 1, 1979

Tax Review: Adjusting Tax Rules for Inflation: Capital Gains and Capital Income

Download Tax Review: Adjusting Tax Rules for Inflation: Capital Gains and Capital Income

Executive Summary
In this essay, Professor Feldstein emphasizes the need to adjust tax policy toward capital gains to reflect the effects of inflation, in order to achieve a more realistic measurement of capital income that is subject to tax.

A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.