Taxing capital gains is bad enough, writes House Ways and Means chairman Bill Archer (R-Tex.), but taxing inflation as though it were a capital gain is even worse.

• In the last year for which figures are available, 50 percent of all taxable "capital gains" were actually attributable to inflation.

• Someone in the 15 percent bracket who invests $5,000 in a mutual fund and realizes a "profit" of $3,000 after ten years has to pay $225 in taxes just to cover that portion of the gain due solely to inflation.

• For senior citizens with annual incomes above $41,000, the capital gains tax due to inflation is nearly twice as large.

• If other sections of the tax code were not indexed for inflation -- which they are -- a family of four earning $50,000 a year and claiming the standard deduction would get a $375 annual tax increase under 5 percent inflation.

Archer attributes Americans' low rate of savings -- only 5 percent -- to the inflation tax on savings and investment. Except for Canada, no other nation in the industrialized world has such a low rate of savings.

And the capital gains-inflation hit targets almost everyone. Eighty-five percent of Americans age 65 or older own an asset susceptible to today's capital gains tax, and 81 percent of families earning between $20,000 and $50,000 a year own such assets.

Opponents of capital gains indexing -- most notably President Clinton -- claim it would be too costly and throw the budget out of whack. But over a 20-year period, indexing would cost the government less than two cents in tax relief for every dollar of government spending.

Source: Rep. Bill Archer, "End the Inflation Penalty," Wall Street Journal, July 17, 1997.