The Sept. 12 front-page article “Tax policy feeds gap between rich, poor” did not mention one of the primary problems with the capital gains tax: It is not indexed to inflation.
If a taxpayer bought a piece of undeveloped land in 1991 for $100,000, paid property taxes for 20 years but made no changes to the property, and in 2011 sold that undeveloped land for $165,000, the taxpayer would owe capital gains tax on $65,000. But the taxpayer has experienced a gain only as far as the IRS is concerned. In those intervening 20 years, cumulative inflation was approximately 65 percent. The taxpayer has the same purchasing power with $165,000 as he or she had 20 years ago with $100,000 — but must pay taxes on the $65,000 that is attributable to inflation. The same capital gains tax is paid whether the $65,000 increase occurs over one year or 20.
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