Senators Ted Cruz and Tim Scott are asking Treasury Secretary Scott Bessent to unilaterally implement a major capital gains tax cut -- by letting taxpayers adjust their cost basis to account for the effects of inflation. In a letter they intended to send on Tuesday, the pair will argue that it's within Bessent's authority to make such a move, without the need for legislation,

“Using your executive authority to … eliminate an unfair inflation tax on everyday Americans is the single most pro-growth economic action the administration can take unilaterally, and it would boost savings, spur investment, and create jobs nationwide,” Cruz and Scott wrote in the letter reviewed by the Washington Post.

To appreciate the injustice of the status quo, consider an investor who paid $10,000 for a stock in January 2010, and sold it for $15,000 in January 2026. On a CPI inflation-adjusted basis, the investment has only grown by $10.22 in real terms. However, the investor is forced to pay tax on a supposed gain of $5,000. By some estimates, a third of all unrealized capital gains represent the effects of inflation. 

"American families and job creators should not have to pay taxes on phantom income," said a group of more than 30 conservative organizations and individuals in a letter to President Trump last month. "Our tax brackets are indexed to inflation for a reason—we don't think a worker who gets a raise that barely keeps pace with inflation should face a tax increase. The same principle should apply to savings. 

In their letter to Bessent, the two senators also argue that capital gains tax relief can also help ease the woes of America's pricy housing market, pointing to people who have large unrealized gains on their homes, making them reluctant to sell. Note that owner-occupied properties can currently use an exclusion of up to $250,000 in gains for singles, and $500,000 for married couples filing jointly. 

Not everyone agrees about the legality of such a move by the Treasury Department. Last month, Americans for Tax Reform said, "The Treasury Department has the authority to redefine the calculation of capital gains taxes by excluding inflation from tax owed, based on several legal analyses going back several decades." Skeptics point to a 1992 conclusion of the Justice Department’s Office of Legal Counsel that said such a move would exceed the department's authority. 

As they are prone to do with most tax-cut proposals, leftists whine that most of the benefit of a capital gains indexing would accrue to the wealthiest taxpayers -- but that's because they're hardest hit by the current structure. For 2026, unmarried taxpayers with taxable income under $49,450, and married taxpayers with income under $98,900, have a 0% capital gains rate. The rate rises to 15% for those with taxable income under $545,500 for unmarrieds and $614,700 for married couples. Beyond that, the rate is 20%. Those with substantial net investment income are hit with another 3.8%.