[njarboe]

Labor is taxed year-by-year so inflation does not have much influence on it. Capital gains tax taxes the sales of things (capital) that might have been held for decades. Buy a piece of land and hold it for 20 years. If inflation is 3% then the dollar value will go up by a factor of 1.8 without any real increase in value but if you sell it you will get taxed on that inflation created gain. Some see that is not "fair". That is the spin, anyway.

I think the way to mitigate this problem is to index capital gains to the CPI and then tax gains like income. This cleans up the tax code quite a bit, stops favoring capital over labor, and balances out the pressure on the CPI with having a powerful group of people wanting to have it go up. At the moment CPI is probably under-reported and keeping social security and other inflation adjusted things lower than they would be otherwise.

[lotsofpulp]

I don’t think CPI needs to be used to mitigate the problem of taxing inflation on assets. It would just increase the politicization of CPI, which is already not realistic.

The market can easily adjust prices for assets to factor in the cost of inflation and taxes.