WASHINGTON, D.C. – U.S. Senator James M. Inhofe (R-Okla.) today sent a letter to President Bush urging him to mandate that the Internal Revenue Service change its practice and no longer unfairly tax inflation on capital gains.
“Taxation of inflation is one of the most unjust practices of the tax code,” Senator Inhofe said. “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 the current tax code, an American who purchased a share of stock for $10 in 1952 and sold it for twice that amount in 2002 would be taxed as though he or she gained capital, even though the transaction was clearly a loss when inflation is taken into consideration. Furthermore, a 1993 study by the Federal Reserve Board Chairman calculated that the actual tax rate on investments in the S&P 500 from 1972 to 1993 averaged 101% when one accounts for inflation. Studies on the New York Stock Exchange (NYSE) and the Dow Jones Industrials concluded similar results.
“Without an inflation index, the tax code incentivizes short-term speculation and discourages long-term capital investment, fostering an atmosphere of inefficiency and unfairness.”
Recognizing the current situation as an obstacle for both hard-working constituents and the American economy, Senator Inhofe continues to push for modernization and simplification of the U.S. tax code.