As inflation ticks upward, Republican lawmakers are pushing for capital gains taxes to be indexed to inflation, which could translate into a significant tax cut for American investors, homeowners, and savers.

However, critics say it could put the government further in the red.

Sen. Ted Cruz (R-Tex.) sponsored the Capital Gains Inflation Relief Act of 2025 to index capital gains to inflation. In March, Cruz and Sen. Tim Scott (R-S.C.) sent a letter to Treasury Secretary Scott Bessent urging him to enact inflation indexing without waiting for Congress. House Republicans sent a similar letter days later.

"Homeownership and long-term real estate investment remain central to achieving the American Dream for millions of families," House Republicans wrote. "Yet under current tax treatment, taxpayers are often required to pay capital gains taxes not only on real economic appreciation, but also on nominal gains attributable solely to inflation."

Thus far, Bessent has not stated his position on the issue. Here's what to know about the proposal.

Currently, Americans are taxed on assets when they sell, based on the difference between the purchase price and the sales price, or nominal gains. For those who hold an asset longer than one year, the capital gains tax rate is between zero and 20 percent, depending on a filer's overall taxable income.

But because assets appreciate over time, inflation also enters into the calculation.

"The tax code treats inflation like it is income, which it isn't," Adam Michel, director of tax policy studies at the Cato Institute, told The Epoch Times. "When you sell an asset, you're taxed on the nominal gain-real growth and inflation lumped together-so you pay tax both on dollars you earned and the phantom income from inflation."

Since 2020, the U.S. dollar has lost about 29 percent of its value to inflation. And at times of high inflation and low growth, the effective capital gains tax rate can top 100 percent, Michel said, which has occurred in at least nine years since 1957.

Inflation indexing would increase the cost basis, or purchase price, of an asset in line with inflation during the period the asset was held.