How Indexing Capital Gains Could Add $1 Trillion to U.S. Debt by 2035

I've been watching the numbers climb, and it looks like the U.S. national debt is on a path to surpass $39 trillion. It’s an eye-opener, especially when you consider the policy changes on the table that could push it even higher.

The Deep Dive: What’s on the Table?

Recently, a group of Republican lawmakers, led by Senators Ted Cruz and Tim Scott, urged the Treasury to consider adjusting capital gains taxes for inflation. The idea is to alter the cost basis of an asset, so the tax reflects only real gains, not those inflated away by the economy. This could significantly lower the taxable amount on gains, but here’s the kicker: it could also chop down tax revenue by an estimated $170 to $950 billion by 2035.

The numbers tell the story. Back in 2018, the Congressional Budget Office projected $9.5 trillion in taxable capital gains over a decade, and now that figure has ballooned to $16.5 trillion. That’s thanks to the S&P 500 nearly doubling since then and low inflation keeping cost-basis adjustments in check. The gains mainly go to the wealthiest, with the richest 10% owning over 90% of stocks. The top 0.1% could see a $350,000 tax windfall from 2026 to 2027, while the bottom two quintiles get nothing.

Broader Implications: What’s the Cost?

So, what does this mean on a larger scale? From a risk perspective, adding potentially $1 trillion to the national debt is a serious concern. Interest on this debt is growing, and fast. In fact, it’s projected that the interest alone will surpass GDP growth within five years. That’s a debt spiral in the making. With the national debt adding $2 trillion annually, and $1 trillion in interest payments, the fiscal outlook is grim.

There’s also the issue of fairness. While the wealthy might benefit from these changes, middle and lower-income Americans stand to gain little. If you’re an investor, especially one with significant capital gains, this might sound like a great deal. But if you’re in the middle or at the bottom, the policy does nothing for you. It's not just about tax cuts, it's about who they serve.

Opinion: What Should We Do?

Here's what matters: We need to ask ourselves if this is the right direction. Sure, everyone likes the idea of paying less tax. But at what cost? Can we really afford to deepen the national debt to offer tax cuts that primarily benefit the wealthy? Frankly, the numbers don’t add up. The reality is, we need more revenue, not less.

In the crypto world, this type of policy could see increased investor flows into digital assets as individuals look to capitalize on the tax savings. But again, who benefits? The street is missing the fact that while we talk about boosting economic growth, we ignore that the benefits are skewed.

Let me break this down: If you’re considering these tax changes, think about the bigger picture. The debt load is already staggering, and adding to it isn’t just about numbers. It's about future stability, interest rates, and economic health. We need smart policies that consider everyone, not just a select few. What do you think? Is the short-term gain worth the long-term risk?