The White House is evaluating a proposal to index capital gains to inflation, a policy shift that would reduce taxable gains on all property-classified assets — including cryptocurrencies. National Economic Council Director Kevin Hassett confirmed on August 11 that the administration is developin...
"I spoke to him, he liked the idea of the indexing, he liked the idea of a bigger exemption." — Larry Kudlow, Former National Economic Council Director, on Fox Business (August 11, 2026)
The White House is evaluating a proposal to index capital gains to inflation, a policy shift that would reduce taxable gains on all property-classified assets — including cryptocurrencies. National Economic Council Director Kevin Hassett confirmed on August 11 that the administration is developing the proposal ahead of November's midterm elections. No legislation, executive order, or formal draft exists.
The fiscal cost is substantial. The Committee for a Responsible Federal Budget estimates the policy would reduce federal revenue by $170 billion to $950 billion through 2035, depending on retroactivity provisions. A 2018 Penn Wharton Budget Model analysis found 86% of the tax cut would accrue to the top 1% of earners and 63.1% to the top 0.1%. The current federal deficit stands at approximately $1.8 trillion through the first ten months of FY 2026.
For U.S. crypto holders, the implications are direct but uncertain. Digital assets are classified as property under the Internal Revenue Code, which means inflation indexing would mechanically apply. However, no draft currently specifies whether Bitcoin, Ether, or other digital assets fall within scope, and the proposal faces legal, legislative, and political barriers that make implementation uncertain.
Kevin Hassett disclosed the initiative during a Fox Business interview on August 11, 2026. Host Larry Kudlow — himself a former NEC Director — stated he had spoken directly with President Trump, who was receptive. White House spokesman Kush Desai confirmed the administration is "always exploring new ideas to Make America Wealthy Again" but offered no policy specifics.
The core mechanism: adjust the cost basis of capital assets upward using a recognized inflation index before calculating taxable gains. The result is that investors pay tax only on "real" economic gains — the portion that exceeds cumulative inflation during the holding period.
Senator Ted Cruz's Capital Gains Inflation Relief Act of 2025 (S. 798) provides the most detailed legislative template. That bill would allow individual taxpayers (not corporations) to adjust cost basis for assets held over three years. Eligible assets include common stock, tangible property, and — notably — digital assets. The bill specifies the GDP price deflator as the inflation measure.
The proposal also includes a secondary component: raising the home-sale capital gains exclusion from $500,000 (married couples) to as much as $2 million. A Brookings Institution analysis found that 95% of households already owe no federal capital gains tax on primary residence sales under current law, suggesting this provision targets high-value real estate markets.
Under current law, if an investor purchased 1 BTC at $30,000 in 2021 and sold at $90,000 in 2026, the taxable long-term capital gain is $60,000. At the 15% bracket (which applies to single filers with income between $47,026 and $518,900 in 2026), the tax liability is $9,000.
With inflation indexing at a cumulative 25% rate over five years, the adjusted cost basis rises to $37,500. The taxable gain shrinks to $52,500 — a 12.5% reduction. The tax bill at 15% drops to $7,875, saving $1,125.
A second illustration: purchasing Bitcoin at $100,000 and selling at $200,000 with 20% cumulative inflation would lift the cost basis to $120,000, reducing the taxable gain from $100,000 to $80,000.
The savings scale with holding period and asset appreciation trajectory. Assets that merely tracked inflation would see taxable gains approach zero. Assets that substantially outperformed inflation — as Bitcoin has over multi-year periods — would still carry large taxable gains, but with a meaningful reduction.
Current long-term capital gains rates for 2026: 0% for single filers with income up to $47,025; 15% for income between $47,026 and $518,900; 20% for income above $518,900. A 3.8% Net Investment Income Tax applies above $200,000 ($250,000 married), bringing the effective top rate to 23.8%.
Three independent analyses converge on the same conclusion: the policy is expensive and regressive.
Committee for a Responsible Federal Budget (CRFB): Revenue reduction of $170 billion to $950 billion through 2035. The range depends on whether indexing applies retroactively (to all existing unrealized gains) or prospectively (to assets purchased after enactment). Maya MacGuineas, CRFB president, stated: "The last thing we need is more deficit-financed tax cuts — especially ones enacted by executive fiat."
Penn Wharton Budget Model (2018 analysis): 86% of the tax cut would benefit the top 1% of earners. 63.1% would flow to the top 0.1%.
Congressional Research Service (2026): Approximately 90% of the benefit flows to the top 1% of earners, and about 60% to the top 0.1%. Separately, IRS data from 2022 shows that 75% of Americans reported less than $100,000 in adjusted gross income, and 96% of those taxpayers reported zero capital gains income.
Institute on Taxation and Economic Policy (ITEP): The benefits are "utterly irrelevant for the vast majority of middle-income Americans." The richest 1% are already slated to receive at least $1 trillion in tax cuts over the next decade from the Trump tax law enacted in 2025, which adds $4.6 trillion to the national debt over the same period.
For context, Gallup polling shows only 12% of Americans believe upper-income people pay too much in federal taxes. Middle-income Americans are currently facing an average $900 tax increase in 2026.
There are two routes to implementation, neither straightforward.
Congressional legislation: The Cruz-Scott bill (S. 798) would require standard legislative passage. It has not moved through the Senate Finance Committee. Even with Republican support, the proposal faces criticism from deficit hawks within the party. The cost estimate of up to $950 billion makes it difficult to reconcile with budget reconciliation rules.
Executive action: In March 2026, a group of Republican lawmakers urged Treasury Secretary Scott Bessent to enact indexing by executive action — essentially directing the IRS to redefine "cost" in the tax code to include inflation adjustments. This approach mirrors what the George H.W. Bush administration considered in 1992 before abandoning the effort. In 2019, Treasury Secretary Steven Mnuchin deferred to Congress rather than acting unilaterally when urged by Cruz.
The executive-action pathway faces potential legal challenges. Redefining cost basis without legislation stretches executive authority and would almost certainly face judicial review. The Americans for Tax Reform coalition supports the approach, arguing that "rather than having to pay tax on both real and inflationary gains, a family or business selling an asset would only pay tax on the real gain."
Even if indexing passes, crypto assets present implementation challenges that traditional equities do not.
Wallet-by-wallet basis tracking: Starting January 1, 2025, the IRS requires investors to track cost basis on a wallet-by-wallet basis rather than using universal cost-basis methods. Each wallet functions as its own separate cost-basis account. Adding inflation adjustments on top of per-wallet tracking multiplies compliance complexity.
Holding period fragmentation: Crypto investors frequently move assets between wallets, exchanges, DeFi protocols, and staking contracts. Each transfer can reset or complicate holding period calculations. The Cruz bill's three-year minimum holding period for indexing eligibility means only long-term holders benefit — but determining what constitutes "long-term" across multiple wallet transfers is administratively complex.
DeFi and staking: Assets deposited into lending protocols, liquidity pools, or staking contracts may or may not trigger taxable events depending on the specific mechanism. Inflation adjustments on wrapped, staked, or rebased tokens raise questions the current proposal does not address.
Stablecoin exemption logic: Stablecoins pegged to the U.S. dollar would theoretically receive inflation-adjusted basis, but since their value is designed not to appreciate, the indexing would create artificial losses. No current draft addresses this edge case.
The timing of the indexing proposal intersects with the IRS's ongoing rollout of Form 1099-DA, the first standardized digital asset reporting form. For the 2025 tax year (reported in early 2026), brokers were required to report gross proceeds but not cost basis. Basis reporting begins with the 2026 tax year.
Major exchanges including Coinbase and Kraken missed the February 17, 2026, deadline for issuing 1099-DA forms, with delivery pushed to mid-March. The IRS granted transition relief allowing certain brokers to issue forms up to one year late.
If inflation indexing were enacted before basis reporting standards are fully operational, brokers would face an additional layer of calculation complexity. Cost basis would need to incorporate not just purchase price and fees, but year-by-year inflation adjustments tied to the GDP price deflator or an alternative index.
Congress repealed IRS rules that would have swept non-custodial DeFi platforms into broker status via a Congressional Review Act resolution signed into law in April 2025. This means a significant portion of crypto transaction activity remains outside the 1099-DA reporting framework entirely, making enforcement of any inflation-indexed basis regime incomplete.
Capital gains indexing is not a new idea. The George H.W. Bush administration considered it in 1992 but abandoned the effort over legal concerns about executive authority. The idea resurfaced under Trump's first term in 2019, when Treasury Secretary Mnuchin opted to defer to Congress rather than act unilaterally.
The proposal has appeared in Republican tax platforms for decades. It has never been enacted. The consistent obstacle is fiscal cost: every independent analysis shows the policy reduces federal revenue by hundreds of billions while directing the overwhelming majority of benefits to the wealthiest taxpayers.
The crypto-specific application is entirely new. No prior version of the proposal contemplated digital assets as a distinct category. The Cruz bill explicitly includes digital assets in the list of eligible property, making it the first legislative text to address crypto and inflation indexing together.
The proposal is a midterm signal, not a policy. Hassett's disclosure positions it as a campaign commitment — material for candidates to run on in November, not a near-term legislative priority. The fiscal math is unfavorable, the legal pathway uncertain, and the crypto-specific implementation details nonexistent.
For U.S. crypto holders, the relevant fact is structural: digital assets are property, and any change to capital gains taxation applies to them by default. The question is not whether crypto would be included — it would — but whether the policy advances at all. Based on historical precedent and current fiscal constraints, the probability remains low. The federal deficit is running at $1.8 trillion, the proposal costs up to $950 billion over a decade, and no version has ever cleared Congress in 30 years of attempts.
What the proposal does clarify is the direction of policy intent. The administration views crypto holders as a constituency worth courting with tax relief. Whether that intent converts to statute is a separate question entirely.