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by Timothy D. Carkin
Senior Vice President

Capital Gains Inflation Indexing

News broke this week that the Trump administration would consider bypassing congressional legislation to change the capital gains taxes rules to index for inflation. The current strategy that is being floated is to use the Treasury department and IRS rather than traditional legislation to redefine capital gains to include only returns in excess of inflation.

The impact of these changes could be substantial for many investors. For example, 10 years ago an investor purchased $10,000 of a stock and, at present, that stock is worth $12,000. If the stock was to be sold now, the taxable capital gain would be $2,000. If, during that period, inflation was 2 percent the proposed rule would only tax the capital gains in excess of that inflation value, thereby lessening tax liability. Some estimates say this would effectively reduce capital gains by 8-25 percent and encourage holders of appreciated assets to consider selling. We continue to monitor this proposal as it unfolds and consider the implications for our clients and their portfolios.

An Apple a Day

This week a myriad of catalysts helped move the markets. Equity markets, still reeling from disappointing reports from marquee technology sector companies such as Facebook, Netflix, Intel and Twitter, looked to their white knight, Apple, to turn the news in their favor. Apple did not disappoint with its largest revenue ever stemming from robust iPhone sales and record app-store sales. On Thursday Apple became all investors could talk about as the company breached a $1 trillion market capitalization. The title of largest publicly traded company has been Apple’s for seven years, a title held by General Electric for 11, but achieving a $1 trillion market cap is a first for any company.

Week in Review

Unsurprisingly, the Federal Open Market Committee chose not to raise the overnight rate, maintaining the 1.75–2 percent range. After the announcement little has changed in economists’ predictions for two more rate increases this year.

On the jobs front we saw a few readings this week. The ADP Private payrolls number came in at 219,000 in July, beating the 186,000 estimates and registering the best reading since February. Jobless claims in the U.S. only rose 1,000, keeping the number very close to its 50-year low. July nonfarm payrolls came in below estimates but the prior two months were revised upward which tempered a negative reaction.

With all those catalysts the markets have taken the news in stride with the S&P 500 up 0.7 percent on the week and the 10-year Treasury Note remains unchanged.

Takeaways for the Week: 

  • Inflation indexing of capital gains could change investor behavior
  • Apple became the first $1 trillion company