Congress has the best chance in over 30 years to reform our outdated and anti-competitive tax code. Progress has been encouraging, with both the House and Senate recently passing legislation that lowers business tax rates, introduces expensing, and moves to a territorial tax system. The U.S. Chamber of Commerce remains committed to seeing tax reform legislation on the president’s desk before Christmas.
Before it gets there, however, the conference committee will make improvements as it finalizes the bill. One of those changes should be to strike a little known, and less talked about, provision in the Senate bill that would hike the capital gains tax for millions of Americans. It is called first-in, first-out, or FIFO.
Americans commonly buy stocks over time, even of the same company. And under current law, when it comes time to sell they can determine which blocks of shares they would like to sell, thereby managing their net annual capital gains tax liability. The Senate bill would eliminate that choice, pushing investors to sell stocks on a FIFO basis. Provided that all goes as planned, and the stock appreciates over time, that change would force people to incur the maximum amount of capital gains tax on their investments. FIFO is effectively an increase in the capital gains tax, and it flies in the face of long-standing pro-growth tax policy.
It raises taxes on Americans saving for their future, funding their retirement, or helping with their children’s education. Does the capital gains tax provision substantially offset the powerful growth-inducing benefits from the rest of the bill? Of course not, but it is certainly inconsistent with the goals of the rest of the bill.
Congress’ intent is to produce pro-growth legislation, and we urge it to move forward with that goal. To do that, it should leave capital gains FIFO behind.
