NCPA - National Center for Policy Analysis

Raising the Limit on Capital Loss Write-Offs

October 16, 2002

While some members of Congress are engaged in pre-election posturing on the economy, the House may take up a plan that could give the economy a real boost, observers say. One part of the plan by House Ways and Means Chairman Bill Thomas (R.-Calif.) would raise the amount of capital losses investors can write off against the taxes from $3,000 to $8,250.

It may sound like a small thing, but it isn't.

  • As the Institute for Research on the Economics of Taxation has noted, the current $3,000 limit was put in place in 1978.
  • Just to keep place with inflation, it should be at least $9,000 by now.
  • In fact, if changes in market indexes were included, it should jump to $30,000.
  • People can write off more than $3,000 now of course -- but it must be spread out over a number of years, meaning the taxpayer gets a smaller write-off, because a dollar tomorrow is always worth less than a dollar earned today.

Proponents argue that by making future losses less burdensome, it would make stocks more attractive and less risky. That would mean more savings and investment, and would affect a large number of taxpayers. Capital gains taxes are increasingly a fact of life for middle-class families. Fifty percent of all Americans own share, and roughly 40 percent of all mutual fund owners have incomes less than $50,000.

Source: Editorial, "A Capital Idea," Investor's Business Daily, October 16, 2002.


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