Congressional Democrats don’t want to admit it, but they were once among the staunchest advocates for indexing capital gains for inflation — a move President Trump announced late last week he is considering. It was met with disapproval from congressional Democrats like Sen. Chuck Schumer and Rep. Richard Neal.
Yet 26 years ago, on an otherwise ordinary February afternoon, Democrats voted overwhelmingly to make it the law of the land.
Back in 1992, when Democrats wanted to capitalize on President George H.W. Bush’s disastrous about-face on his campaign promise not to raise taxes, they — led by House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) — proposed an amendment to the Tax Fairness and Economic Growth Act of 1992 that they argued would have made the tax code fairer to middle-class and working Americans.
The Republicans in Congress at the time didn’t much care for it. Rostenkowski’s amendment included yet another increase in the top marginal rate (on top of the one Bush 41 had already signed into law) and an increase in the dreaded Alternative Minimum Tax.
But it also would have indexed capital gains to inflation for newly acquired assets.
Proposals to index capital gains don’t lend themselves to catchy campaign soundbites or bumper stickers, but the political appeal is apparent. If you invest $100 and, a decade later, sell that investment for $120, you’re taxed on a $20 capital gain. But, in the meantime, if inflation averaged 2.5 percent, the $120 you receive will be worth less in real terms than the $100 you invested. To index capital gains for inflation is to protect taxpayers from the ravages of inflation by taxing only their actual capital gains.
Today, Democrats routinely disparage capital-gains indexation as a “handout to the rich” and a “broken promise to workers.” That rhetoric bears little resemblance to Steny Hoyer’s (D-Md.) observation on Feb. 27, 1992, the day of the vote on Rostenkowski’s amendment, that the measure had “the best interest of the middle-income family in mind.”
Hoyer was not the only congressman to speak on the House floor that day. One Democrat after another took to the floor to lavish praise on the plan. The frenzy culminated mid-afternoon with no fewer than 220 Democrats (including the nominally “independent” Bernie Sanders) voting for the measure.
Of the 220 Democrats who voted to index capital gains, 15 still serve in the House and seven are in the Senate. They now hold some of the most senior leadership positions among Democrats in Congress. And, if they are so inclined, they are the key to reaching a bipartisan accord on capital gains.
This doesn’t need to be a partisan issue, especially as the cost of inaction is large and inexcusable.
As Larry Kudlow wrote with one of us seven months prior to his joining the Trump administration as National Economic Council director: “Former Treasury economist Gary Robbins estimates that indexing capital gains for inflation this year [2017] would, by 2025, create an additional 400,000 jobs, grow the US capital stock by $1.1 trillion, and boost GDP by roughly $500 billion. That all translates to an additional $3,600 for the average household.”
Congressional Democrats once touted indexing capital gains as an effective way to boost economic growth and benefit workers. “If we really want to increase growth,” said Chuck Schumer, the then-future Senate minority leader, “there are proposals that we can do. I would be for indexing all capital gains, savings and borrowings.”
Listen to Schumer. He is — or, at least, was — right.
James Carter was a deputy assistant Treasury secretary under President George W. Bush. Peter Roff is a senior fellow at Frontiers of Freedom, a Washington, DC, public-policy group.
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