Republican lawmakers are looking at ways to lower taxes on capital gains as the party searches for new ways to woo voters worried about the cost of living heading into November's midterm elections.
A 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 a long shot. Some Republicans have also pushed President Donald Trump's administration to make that 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," Senator Ted Cruz, a Texas Republican, said.
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.
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.
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 to the wealthy, opening up Republicans to potential political attacks.
The Treasury Department did not respond to a request for comment about the prospects of the proposal to index capital gains to inflation.
Indexing capital gains would encourage homeowners to sell by lowering their potential tax hit, freeing up more housing supply, Cruz said. The change would also encourage people to sell stocks and bonds they otherwise might hold onto, he added.
Senate Finance Committee Chairman Mike Crapo, an influential voice on tax policy within the GOP, says he "personally" supports indexing capital gains and that it would be among the proposals considered if a Republican tax bill comes together this year.
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. 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, according to a Yale Budget Lab
The optics could also be tricky for Republicans heading into the midterm elections in November since most of the tax break would go to the top 20% of earners, with the top 0.1% collecting the greatest savings, according to the Budget Lab.
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."
