09 April 2025
Donald Trump’s push to scrap the capital gains tax raises deeper questions about fairness, wealth, and society's future.
Imagine a world where wealth grows untaxed - not just lightly taxed but completely untouched by the government's hand. No matter how many millions - or billions - you make from the sale of stocks, property, or private equity, none of it is shared back with society. That world may not be far off if Donald Trump follows through on what's fast becoming one of his most provocative promises: to eliminate capital gains tax entirely from 2025.
On the surface, it might sound like another political headline, another promise he fails to deliver. But this idea touches a much deeper nerve. It calls into question how we value contribution, what fairness really looks like, and whether the economic system is being tilted so far in one direction that the contract holding it all together begins to unravel.
Capital gains tax isn't just about dollars and cents. It's a symbol of a broader agreement between people and the state. Those who profit from living in a well-governed, opportunity-rich society are expected to contribute back to it - not as punishment but as part of a mutual arrangement.
Scrapping that obligation doesn't just reward investors. It separates capital from the broader responsibilities that come with citizenship. If you earn income through a job, you pay tax. If you build wealth through investment, and that's no longer taxed, then we're creating two systems - one for labour, and one for capital.
That shift might feel subtle at first. But over time, it starts to chip away at one of democratic capitalism's core assumptions: that we all play by roughly the same rules.
From an investment perspective, the winners are obvious. Wealthy individuals, family offices, and funds would be free to realise gains without tax erosion. Portfolios could turn over faster. Long-held assets could finally be unlocked. Private equity and venture capital could see an explosion of exits, with a powerful incentive to cash out and reinvest.
But the costs, while less visible, are real. US government income from capital gains tax has been volatile, ranging from $58 billion to just under $250 billion. However, over the past two decades, annual receipts from capital gains averaged around $137 billion, or 0.7 percent of gross domestic product (GDP).
Losing that income would create a significant hole in public finances. Something else would have to give - whether that’s increased borrowing, reduced public services, or higher taxes elsewhere.
More fundamentally, this shift could deepen inequality. For the average worker, income from wages would continue to be taxed. Yet, for those with the means to generate wealth through investments, that income becomes tax-free. Over time, that difference compounds, not just in numbers but in opportunity, power, and influence.
Supporters of eliminating capital gains tax argue that it could unlock trillions in dormant capital, spurring entrepreneurship, business formation, and economic growth. For investors, fewer tax constraints could encourage longer-term thinking and reinvestment, while businesses might benefit from easier access to scale-up funding. Some advocates suggest that, over time, the resulting economic expansion could even offset a portion of the lost tax revenue.
There’s also a belief, particularly among supply-side economists, that the current system discourages risk-taking by taxing success. In their view, reducing or removing capital gains tax would shift incentives toward innovation, investment, and job creation.
Yes, markets would likely rally. Capital would flow faster, investment appetite could rise, and asset classes like real estate and tech stocks might see renewed enthusiasm. The sheer liquidity unlocked would be staggering.
But with that comes risk. If investors begin to believe that capital gains will remain untaxed long-term, it could fuel speculative behaviour. Valuations may rise more on tax arbitrage than true fundamentals, and in a high-volatility, high-valuation environment, corrections could be swift and painful.
More importantly, what happens when the broader public starts to feel the imbalance? When school budgets are cut or healthcare becomes harder to access, yet the wealthy get a new tax holiday?
However, much depends on how such a policy is implemented and what measures accompany it. If paired with targeted public investment, modernised income tax frameworks, or reforms that expand access to capital, the overall impact could be more equitable than it first appears.
There’s also a real chance this move could spark a race to the bottom internationally. If the US, the largest and most influential capital market in the world, removes capital gains tax, it creates pressure on other economies to follow suit. Countries like the UK, Australia, and those across Europe may feel growing pressure to assess their own tax competitiveness. Whether they respond with structural reform or choose to highlight stability and redistribution as advantages will vary by policy preference and political climate.
Meanwhile, wealth-friendly jurisdictions like Singapore and Hong Kong may double down on their low-tax appeal, further accelerating global capital migration. In the end, governments could find themselves caught between competing for capital and maintaining the services and stability their citizens rely on.
The reality is Donald Trump can't unilaterally eliminate capital gains tax. He'd need Congress and a significant political majority to back such a radical move. But if that happens, or if markets even begin to believe it might, the shift in sentiment could come quickly.
However, this isn’t just about tax policy; it's about the kind of economy - and society - we want to live in. One where responsibility and the financial burden are surely shared?
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