Inflation and the Excess Taxation of Capital Gains on Corporate Stock
The present study shows that in 1973 individuals paid nearly $500 million of extra tax on corporate stock capital gains because of the distorting effect of inflation. A detailed analysis shows that the distortion was greatest for middle income sellers of corporate stock. In 1973, individuals paid capital gains tax on more than $4.5 billion of nominal capital gains on corporate stock. If the costs of these shares are adjusted for the increases in the consumer price level since they were purchased, the $4.5 billion nominal gain becomes a real capital loss of nearly $1 billion. As a result of this incorrect measurement of capital gains, individuals with similar real capital gains were subject to very different total tax liabilities. These findings are based on a new body of official tax return data on individual sales of corporate stock.
Feldstein, Martin and Slemrod, Joel. "Inflation and the Excess Taxation of Capital Gains on Corporate Stock." National Tax Journal, Vol. XXXI, No.2, ( June 1978), pp. 107-118.
Inflation and the Excess Taxation of Capital Gains on Corporate Stock, Martin Feldstein, Joel Slemrod. in Inflation, Tax Rules, and Capital Formation, Feldstein. 1983