A push by influential Republican lawmakers to answer voters' concerns about the cost of living by lowering taxes on capital gains is dividing the GOP ahead of November elections.
The proposal to index capital gains for inflation could be in play for a tax-and-spending package later this year, though the likelihood of a bill coming together before the midterms remains low as a key House Republican has voiced reservations. Some Republicans have pushed President Donald Trump's administration to make the change unilaterally.
"It would be the biggest step we could do to counteract the massive inflation under Joe Biden and the Democrats and have a positive impact on affordability, particularly affordability of housing, between now and the midterms," said Senator Ted Cruz, a Texas Republican who is an enthusiastic promoter of the idea.
Indexing capital gains to inflation would allow taxpayers to adjust the value of an asset to account for rising prices across the economy and use that higher base value to calculate gains for tax purposes, ultimately reducing what they owe the Internal Revenue Service if they sell the asset.
Whether the department could single-handedly make that capital gains change without Congress' approval is up for debate and could prompt a court challenge. The benefits of such a move would also be heavily tilted toward the wealthy, opening up Republicans to potential political attacks.
Ways and Means Chairman Jason Smith, Republicans' top tax writer in the House, is a skeptic, though he said Treasury has the "flexibility" to index gains unilaterally without Congress.
"I'm a fan of reduced tax rates, but my focus and priority is delivering for working families," Smith said. He dismissed arguments that indexing capital gains would boost housing affordability as a narrative crafted by "clever lobbyists."
Married couples currently don't have to pay any tax on the first $500,000 in profit on the sale of a primary residence.
Even so, Finance Committee Chairman Mike Crapo, Smith's counterpart in the Senate, said he "personally" supports indexing capital gains and that it would be among the proposals considered if a Republican tax bill comes together this year.
The optics could be tricky for Republicans heading into the midterm elections in November since nearly all of the tax break would go to the top 20% of earners, with the top 0.1% collecting the greatest savings, according to the Yale Budget Lab.
Representative Richard Neal of Massachusetts, the top-ranking Democrat on the Ways and Means Committee, said the Republican plan reflected the GOP's determination to deliver "massive tax cuts to the people at the very top" while portraying itself as a party of the working class.
Senator Ron Wyden of Oregon, Neal's counterpart in the Senate, also criticised the proposal.
"I want a tax policy that gives everybody in America the chance to get ahead, not just a policy that's good for the people at the top," he said.
Cruz said he recently brought up the idea with Treasury Secretary Scott Bessent over breakfast. Cruz and GOP Senator Tim Scott of South Carolina have previously urged Bessent to bypass Congress to index gains to inflation.
The Treasury Department didn't respond to a request for comment.
Cruz said indexing capital gains could encourage homeowners to sell by lowering their potential tax hit, freeing up more housing supply. The change would also encourage people to sell stocks and bonds they otherwise might hold onto, he added.
Despite enthusiasm among key Republicans, the proposal faces challenges. For starters, another big tax and spending bill would require near unanimous support in the fractured GOP.
Republicans have discussed compiling a fresh tax-cut package this year to serve as a follow-up to Trump's 2025 "One Big Beautiful Bill" to demonstrate to voters that they are taking steps to address unease about the economy. The prospect of potentially losing united GOP control of Washington in November has added to growing GOP urgency to enact remaining conservative priorities.
But the party has yet to coalesce around a legislative strategy to advance a bill or the policies that it would contain.
Lawmakers and interest groups have floated a variety of ideas for a new tax bill, including expanding the state and local tax, or SALT, deduction and widening a break for overtime pay.
Another challenge to a capital gains cut is cost. Indexing capital gains would cost about $170 billion over a decade, if the change only applied to new asset purchases, the Yale Budget Lab estimated.
That cost would soar to nearly $1 trillion over the same period, if it applied to assets retroactively, the group found. Cruz says lowering capital gains taxes would generate revenue by encouraging people to sell assets they otherwise would've held onto to avoid tax liability.
The disproportionate benefit for the wealthy would hand Democrats another attack line heading into a midterms where the party has already painted Republicans' recent sweeping budget law as a give-away to the rich.
"That's Democrats' attack whatever we do," Cruz said. "That's what they'll say regardless of the facts, so let's actually do what's good for the economy."
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