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and that's why it's valid to have a capital gains tax discount. It prevents you from making a loss in real terms due to taxes.

• AnthonyMouse 2y ago
  It doesn't actually do that though. It doesn't in the example above, for example -- the real increase in value is zero so any capital gains tax collected is a loss in real terms. And it would be trivial to fix it; just adjust the tax basis for inflation when calculating the capital gain. But reasonable tax policy is not a thing that we have.
  • chii 2y ago
    > just adjust the tax basis for inflation when calculating the capital gain. which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. Not to mention that it takes a lot more effort to do this. Simply discounting capital gains tax is sufficient as a simplification.
    • AnthonyMouse 2y ago
      > which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. The BLS publishes the inflation numbers monthly. Higher granularity than that is negligible and hardly even measurable; the main issue is when you hold something for many years and the rate of inflation is in the double or triple digits. Also, this stuff is already being done by computers. The computer needs the dates to determine if it's a short-term or long-term capital gain so it can use them to calculate the inflation using the official numbers. > Simply discounting capital gains tax is sufficient as a simplification. The difference is enormous. If you hold something for 18 months and the inflation was 6%, you get the same discount as if you hold it for 50 years and the inflation was 600%.