Current Inflation Rate: What It Is and Why It Matters
However, the capital gains tax is still levied on nominal gains, not on real—that is, inflation-adjusted—gains. The portion of your asset’s nominal price rise that merely corresponds to inflation is taxed along with any real profit. The higher the inflation rate, the higher the effective tax rate on your real capital gains, even with an unchanged nominal capital gains tax rate. Higher inflation thus discourages capital formation by discouraging people from accumulating taxable assets. That is, when the general level … Read the rest
