What would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?
A) Only real interest earnings would be taxed.
B) The tax burden on capital gains would increase.
C) Average tax rates would increase.
D) Investors would be worse off.

Question

Quizplus · Accepted Answer

Indexing the tax system for inflation means that only the real (inflation-adjusted) gains on investments would be taxed, rather than the nominal gains. This would prevent investors from being taxed on the portion of their gains that merely reflects inflation, rather than an actual increase in purchasing power.

What Would Be the Effect of Indexing the Tax System