Bill Overview
Title: Capital Loss Inflation Fairness Act
Description: This bill increases the allowance for capital losses and adjusts the increased allowance amount for inflation after 2023.
Sponsors: Rep. Norman, Ralph [R-SC-5]
Target Audience
Population: People with taxable investments
Estimated Size: 70000000
- Investors, particularly those who sell investments at a loss, will be directly impacted as the bill increases the allowable deduction amount of capital losses against other income.
- Individuals with investment portfolios, both small and large, who realize capital losses will benefit from this legislation.
- The bill would also indirectly impact financial planners, accountants, and tax advisors who may need to adjust their advice based on new tax deduction limits.
- The broader financial market might be impacted as investor behavior could change due to the new capital loss rules.
- People who realize most of their income from investments might be significantly impacted as changes in capital loss handling can affect their net taxable income.
- The adjustment for inflation ensures that the benefits of this legislation maintain their value over time, thereby impacting the economic decisions of investors annually.
Reasoning
- The policy targets individuals with taxable investments, which is a significant portion of the U.S. population. About 52% of Americans own stock in some form. However, not all these investors will experience capital losses frequently enough to benefit significantly from the policy.
- This policy primarily benefits those who actively manage their investment portfolios and realize losses, as it would allow them to deduct more from their taxable income, potentially increasing their disposable income and overall wellbeing.
- We assume a diversity of the population, including small and large investors, and professionals such as financial advisors who cater to these clients.
- A substantial portion of the policy's budget will likely be directed to facilitating these deductions and possibly resulting in increased disposable income among affected individuals.
- The indirect impact on financial advisors and planners also suggests a long-term effect on the financial advice industry.
- The adjustment for inflation included in the policy ensures that the value of this benefit is not eroded over time, benefiting especially those who plan long-term investment strategies.
Simulated Interviews
Software Engineer (San Francisco, CA)
Age: 32 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 14/20
Statement of Opinion:
- This policy could really help me in volatile years when I incur losses. It seems well-targeted for active investors.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 6 |
| Year 20 | 7 | 6 |
Financial Advisor (Austin, TX)
Age: 45 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 20.0 years
Commonness: 8/20
Statement of Opinion:
- Potential changes in capital loss deductions are really going to change how I advise my clients. It's a beneficial shift for many of them.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Retired (Miami, FL)
Age: 60 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 5.0 years
Commonness: 6/20
Statement of Opinion:
- For someone living off investments, this policy adjustment could be beneficial if the market doesn't perform well.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 9 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 8 | 7 |
Investment Analyst (New York, NY)
Age: 28 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 3.0 years
Commonness: 15/20
Statement of Opinion:
- As a new investor, I think the policy might not impact me much yet, but it's something to consider for the future.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 7 | 6 |
Accountant (Chicago, IL)
Age: 50 | Gender: other
Wellbeing Before Policy: 5
Duration of Impact: 10.0 years
Commonness: 7/20
Statement of Opinion:
- This change will keep me on my toes but could mean more work and client satisfaction in the long run.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 6 | 5 |
| Year 5 | 7 | 5 |
| Year 10 | 7 | 5 |
| Year 20 | 6 | 5 |
Small Business Owner (Denver, CO)
Age: 55 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 20.0 years
Commonness: 12/20
Statement of Opinion:
- I think this is a nice backup; it's reassuring to know I can minimize my taxable income impact on a bad year.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 7 | 6 |
Educator (Seattle, WA)
Age: 47 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 10/20
Statement of Opinion:
- I'm not sure how often I'll need this, but it's there if the market performs poorly.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 7 | 6 |
Tech Entrepreneur (Los Angeles, CA)
Age: 38 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 10.0 years
Commonness: 5/20
Statement of Opinion:
- This bill might give me more room to be aggressive with investments, knowing losses aren't as painful tax-wise.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 8 |
| Year 2 | 9 | 8 |
| Year 3 | 9 | 8 |
| Year 5 | 9 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 8 | 7 |
Graduate Student (Boston, MA)
Age: 25 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 0.0 years
Commonness: 3/20
Statement of Opinion:
- I find it interesting, but as a student, my tax burden isn't greatly influenced yet by capital losses.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 5 | 5 |
| Year 3 | 5 | 5 |
| Year 5 | 6 | 5 |
| Year 10 | 6 | 5 |
| Year 20 | 6 | 5 |
Retired Doctor (Phoenix, AZ)
Age: 70 | Gender: female
Wellbeing Before Policy: 9
Duration of Impact: 20.0 years
Commonness: 6/20
Statement of Opinion:
- I'm glad to see adjustments that consider our reality with inflation, as it might slightly soften the blow in downturns.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 9 |
| Year 2 | 9 | 9 |
| Year 3 | 9 | 9 |
| Year 5 | 9 | 9 |
| Year 10 | 9 | 8 |
| Year 20 | 8 | 8 |
Cost Estimates
Year 1: $48000000000 (Low: $44000000000, High: $52000000000)
Year 2: $49000000000 (Low: $45000000000, High: $53000000000)
Year 3: $50000000000 (Low: $46000000000, High: $54000000000)
Year 5: $52000000000 (Low: $48000000000, High: $56000000000)
Year 10: $57000000000 (Low: $52000000000, High: $62000000000)
Year 100: $75000000000 (Low: $68000000000, High: $82000000000)
Key Considerations
- Adjustments for inflation will maintain the real value of the loss allowance, affecting long-term budget projections.
- Behavioral changes in investor strategies due to new tax rules could affect capital markets.
- There is uncertainty regarding exactly how many taxpayers will utilize the new increased deduction limits annually.
- Potential for increased immediate liquidity for investors potentially leading to increased consumer spending.