Home › Fairmark Forum › Taxation of Investments › Since the Infrastructure was passed, will Long Term Capital Gains be Retroactive › Reply To: Since the Infrastructure was passed, will Long Term Capital Gains be Retroactive
Here is how it works. If Congress has an increase in capital gains tax under consideration, it needs to bring that proposal before the House Ways and Means Committee. Prior to action by that committee, the proposal is merely an idea supported by certain members. If the committee approves the proposal, however, official action has been taken to move the proposal forward, and it becomes much more likely that the proposal will become law.
Yet a number of hurdles remain. The House as a whole must approve the proposal, then the Senate takes it up, first in the Senate finance committee and then the Senate as a whole. Almost always there are differences between the bills passed in the two houses, so there is a joint conference committee to hammer out the details. The result there isn’t identical to what either house passed, so now both houses must vote again, and if both approve, the bill goes to the president for signature.
All this takes a fair amount of time, and if the increase in capital gains tax didn’t apply until the day the president signs the bill into law, there would be a long period in which people were dumping stocks and other assets to avoid having their gains taxed at the higher rate. To avoid this economic disruption, the effective date is set as the date the Ways and Means Committee approved the increase. The change is prospective from the date people were effectively put on notice that it was likely to occur, so no one is unfairly surprised. This approach has been followed many times in the past, and there is no reason to believe it would be held unconstitutional.