Proposed Federal Tax Cuts for the Wealthy Could Come at Arizona’s Expense 

The Trump administration is reportedly considering two additional capital gains tax cuts: allowing investors to adjust the purchase price of assets for inflation and eliminating capital gains taxes on the sale of certain primary residences. 

Both ideas may sound broadly beneficial. But the largest tax cuts would flow to wealthy households, while the loss of federal — and potentially state — revenue could make it harder to invest in the services Arizona families rely on. 

Indexing capital gains would overwhelmingly benefit the wealthy 

Capital gains are profits from selling assets such as stocks, businesses or real estate. Under current law, the taxable gain is generally the difference between what someone paid for an asset — known as its cost basis — and the amount for which it was sold. 

For example, an investor who buys stock for $100 and later sells it for $300 generally has a taxable gain of $200. Indexing capital gains to inflation would allow the investor to increase the original $100 cost basis to account for inflation, reducing the amount subject to tax. 

That would provide another tax advantage to income from wealth. Long-term capital gains already receive preferential federal tax rates compared with income earned through work. High-income taxpayers generally face a maximum long-term capital-gains rate of 23.8%, including the net investment income tax, compared with a top marginal ordinary income-tax rate of 37%. 

The benefits of indexing would also be concentrated at the top. The Budget Lab at Yale estimates that the top 0.1% of households would receive an average tax cut of approximately $350,000 under one version of the policy. Households in the bottom 40% would receive no benefit. 

Depending on how the policy is designed, it could also cost the federal government between approximately $170 billion and nearly $1 trillion over a decade. 

That lost revenue matters. Congress has already extended tax cuts skewed toward wealthy households and corporations while cutting programs such as Medicaid and the Supplemental Nutrition Assistance Program, or SNAP. Additional tax cuts would increase pressure to cut services, raise revenue in more regressive ways or add to federal deficits. 

A tax policy that favors return to capital over wages presents real concerns of increasing income inequality, especially in an environment in which real wages are stagnant or falling, corporate profits have increased as a share of national income, and previous, similar tax policies have failed to meaningfully grow the economy. 

Arizona benefits would also be concentrated at the top 

Arizona tax data show who is most likely to benefit. 

According to 2022 IRS Statistics of Income data: 

• Approximately 90% of net capital gains reported in Arizona went to households with incomes above $200,000. 

• Approximately 63% went to households with incomes above $1 million. 

• Only 14% of Arizona households earning between $50,000 and $75,000 reported capital gains, averaging $2,852. 

• By comparison, 88% of households earning more than $1 million reported capital gains, averaging approximately $1.23 million. 

The geographic distribution is uneven as well. Approximately one in five Maricopa County tax returns reported capital gains, compared with approximately one in 10 in Navajo County. 

In other words, indexing capital gains would not provide evenly distributed relief. Its largest benefits would go to Arizona’s highest-income households and wealthier communities. 

The proposal could also reduce Arizona revenue, depending on its final structure and whether Arizona conforms its tax code to the federal change. Because Arizona uses federal adjusted gross income as the starting point for calculating state income taxes, some federal tax changes can carry direct consequences for the state budget. 

For instance, as an illustrative example, if the policy reduced net capital gains by 5%, then using 2022 IRS data, the state could see a reduction in capital gains reported at the state level of $1.2 billion and reduction in tax revenue of $30 million.

Arizona can ill afford additional revenue losses. The state’s 2.5% flat income tax has already reduced individual income-tax revenue and made Arizona more reliant on sales taxes, which take a larger share of income from families earning the least. Less revenue means fewer resources for schools, housing, water infrastructure, child care and other investments that support Arizona’s economy. 

Expanding the home-sale exclusion would miss most homeowners 

The administration is also reportedly considering expanding or eliminating capital-gains taxes on the sale of primary residences worth $2 million or less. 

Under current law, qualifying homeowners can already exclude up to $250,000 in gains from the sale of a primary residence, or up to $500,000 for married couples filing jointly. Importantly, the tax applies to the gain on the home — not its entire sale price. 

Consider a married couple that bought a home for $250,000 and later sold it for $750,000. Their $500,000 gain could already be fully covered by the current exclusion. Qualifying home improvements can also be added to the property’s cost basis, further reducing its taxable gain. 

As a result, most homeowners would receive nothing from completely eliminating the tax. The Budget Lab estimates that only about 10% of homeowner households had gains exceeding the existing exclusions in 2022. Those households had an average net worth of $5.7 million. 

The benefits would also be concentrated in high-cost communities. In June 2026, the median home sold for approximately $465,000 in Phoenix and $332,000 in Casa Grande. By comparison, the median sale price in Carefree was approximately $1.3 million. 

Housing affordability is a serious problem, but another tax break primarily benefiting owners of highly appreciated homes is poorly targeted to solve it. Interest rates, construction costs, zoning, labor availability, and other costs of living increases for food, gas, and utilities often play critical roles in determining whether working families can afford to buy a home. 

Arizona needs investments that lower costs for families 

These proposals follow years of federal and state tax cuts that have disproportionately benefited wealthy households and corporations. The promise is often that additional tax breaks will produce more investment and stronger economic growth. The evidence for that claim is weak. 

Meanwhile, the tradeoffs are real. Revenue devoted to tax cuts for households with million-dollar capital gains cannot also be used to protect health coverage, reduce child care costs, improve schools or build the infrastructure Arizona needs. 

Economic growth will not come from further concentrating wealth. It will come from investing in the people, communities and public systems that allow more Arizonans to participate in — and benefit from — the economy.