Editor’s note: Richard L. Kaplan, the Guy Raymond Jones Chair in Law at Illinois, is an internationally recognized expert on U.S. tax policy. In an interview with News Bureau business and law editor Phil Ciciora, he discusses the effects of indexing capital gains taxes to inflation, a policy maneuver that has been suggested as a potential stimulus to a slowing economy.

President Trump recently said that he was interested in indexing capital gains for inflation. What would that entail?

The basic idea is fairly simple and really very sensible. If you bought a stock for $10,000 in 1999 and sold it this year for $12,000, the nominal gain of $2,000 completely ignores the different values of a dollar today versus 20 years ago. Under indexation, the $10,000 cost “basis” of this stock would be adjusted by some appropriate measure of inflation – perhaps the gross national product implicit price deflator – before computing gain or loss on the transaction. For assets that are held many years, the result in most cases would be smaller gains to pay tax on and, in many cases, actual losses to deduct against other income.

Read the full interview at news.illinois.edu.