Economist Steve Moore on Indexing Capital Gains for Inflation to Boost Housing Supply

Mansion Tax Failures in Los Angeles

• 💡 The "mansion tax" in Los Angeles, intended to fund affordable housing, has largely failed, with less than 1% of funds going to its stated purpose.
• 📉 Luxury home sales have plummeted by 30-50%, and further development has slowed significantly due to this tax.
• 💸 72% of the collected tax money was diverted to government handouts and bureaucracy, not affordable housing.

The Problem with Taxing Inflationary Gains

• 🏠 Many homeowners, especially those who bought houses decades ago, face substantial capital gains taxes that are largely due to inflation, not real profit.
• 📈 This means people can end up paying taxes on gains that are effectively wiped out by inflation, sometimes resulting in taxes over 100% of the real appreciation.
• 🚫 Taxing these inflationary gains is seen as unfair and discourages people from selling their homes.

Proposed Solution: Indexing Capital Gains for Inflation

• 🔑 Steve Moore proposes indexing capital gains on residential real estate sales for inflation.
• 🏘️ This policy aims to increase the supply of housing by encouraging more people to sell their homes, as they would pay taxes only on the real profit.
• 💰 By encouraging sales now, it could also generate revenue for the government, as people would pay taxes immediately rather than waiting for heirs to receive a step-up in basis at death.

Addressing Counterarguments

• ❓ Concerns were raised about whether this policy should apply to other assets like stocks and gold, and about its impact on the government's budget deficit.
• 📊 Moore argues that indexing capital gains would not necessarily lose revenue due to the current "step up of basis" loophole, which allows heirs to avoid capital gains taxes entirely.
• ✅ The proposed solution is presented as a way to benefit buyers, sellers, and the Federal Treasury by increasing housing supply and generating tax revenue.