President Trump says one of his top priorities is to bring down the cost of buying a home. Among his proposals are a prohibition on institutional investors’ buying houses and an expansion in the loan portfolios of Fannie Mae and Freddie Mac.
Here’s a much better idea—one that would make homes more affordable and raise at least $100 billion of federal revenue: index capital gains on the sale of residential real estate for inflation. The tax on investment profits, which runs as high as 23.8%, is based on nominal gains. If you bought an asset 40 years ago for $2,000 and sell it for $6,000, you’ll pay tax on the $4,000 gain—even though the value of the asset has only barely kept up with inflation.
To translate that into real-estate terms, suppose you and your spouse live in a house you bought in 1986 for $400,000, and that today the property is worth $2.5 million. If you sell it for a paper gain of $2.1 million, you get a $500,000 exclusion (assuming you file jointly) and pay taxes on the remaining $1.6 million nominal gain.
But the $400,000 you paid for the house in 1986 dollars is the equivalent of around $1.2 million today, so the inflation-adjusted appreciation in value is only $1.3 million. Your real taxable gain would be $800,000—half of the currently taxable nominal gain. (The $500,000 exclusion, which Congress enacted in 1997, was meant in part to compensate for this, but it isn’t indexed for inflation either.)
Americans are sitting on roughly $55 trillion in nominal unrealized gains in the value of homes and other real estate. That’s one reason why, as home values rose during the recent inflationary period, sales declined from more than six million homes in 2021 to a little over four million in 2025.
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Indexing would give the government a piece of the gain while freeing up homes for young families. Mr. Trump should urge Congress to enact this win-win tax cut immediately.
Isabella Moder and Tajda Spital summarize their new paper on the effects of protective tariffs on domestic manufacturing. (HT Bryan Riley) A slice:
Recent tariff increases have sparked a debate over whether trade protectionism can effectively attract foreign investment. This column analyses how firms adjust their investment strategies in response to tariff hikes. While inward FDI generally tends to rise after tariff increases, this pattern reverses for manufacturing investment, where tariff increases lower the number of new FDI projects due to higher input costs and supply chain disruptions. This is particularly the case for FDI in upstream and intermediate-goods sectors. The findings suggest that sweeping tariff measures are unlikely to foster new manufacturing capacity and may instead deter the type of investment policymakers aim to promote.
Kyle Handley tweets: (HT Scott Lincicome)
New semiconductor tariffs just dropped but read the fine print. The exemptions are enormous: data centers and most consumer/industrial electronics carved out: PCs, gaming, autos &robotics. This still creates uncertainty and chills investment (it’s phase 1), but it’s hard to see where the tariff really bites in a typical use case. Compounding the hassle cost of doing business.
In 2023 Iran exported to roughly 119 countries, accounting for almost 90 percent of U.S. imports. Taken at face value, this would be a tariff of about $350 billion. If compliance with the U.S.-Mexico-Canada (USMCA) trade agreement qualifies for exemption, it is still $250 billion. Or, if the tariffs apply only to the major Iranian trade partners (Mexico, for example, purchased just $11,000 in goods from Iran while China imported $5 billion), tariff revenue falls to $100 billion….
So, a friendly reminder: The president just raised taxes by between $100 billion and $350 billion, further damaging the growth of after-tax income and pushing up costs at a time when inflation failed to decline during 2025.
Walter Donway predicts that free markets would break China’s ‘monopoly’ on rare earths. Three slices:
That dependence did not arise because rare earth minerals are scarce. They are not. Nor did it arise because China alone possesses the technical capacity to mine or refine them. It arose from a long chain of economic and political decisions — made largely in free societies — that concentrated production in a country willing to accept costs others would not.
Understanding how that happened is essential to understanding why China’s apparent monopoly is far less “coercive,” and far less durable, than it looks.
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Despite their name, rare earths are widespread. Significant deposits exist in the United States, Australia, Brazil, India, and elsewhere. What makes them challenging is not their scarcity but their processing. The essential problem is that they are chemically almost identical, so how do you devise subtly different processes to separate them? More generally, they are chemically stubborn — for example, often intermingled with radioactive materials, and require dozens — sometimes more than a hundred — separation and purification steps. Each step consumes energy and produces toxic waste, making rare earth refining among the most environmentally punishing metallurgical processes in the modern economy.
The crux of the matter is straightforward. Mining rare earths is manageable. Processing them cleanly and at scale is hard, expensive, and politically fraught.
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Coercive monopolies are inherently unstable. They persist only so long as the costs of entry exceed the perceived risks of dependence. Once that balance shifts, the monopoly begins to erode. China’s own actions are now accelerating that shift.
Export restrictions and licensing regimes raise prices and introduce entrepreneurial uncertainty. Those effects are painful in the short term, but they also activate powerful counterforces. Higher prices make alternative supply economically viable. Unreliable supply makes diversification valuable. Strategic risk becomes something investors and manufacturers are willing to pay to avoid. This is the market logic that China cannot escape. By tightening its grip, Beijing invites others to loosen it.
Whatever debilitating brain parasite burrowed into the gray matter of American politics over the last decade-plus has resulted in some astonishing transformations. One of the biggest has been the reshaping of the once nominally pro-capitalist Republican party into a populist party hostile to free markets. Under President Donald Trump, the GOP increasingly favors the whims of the president and his cronies over the results of voluntary interactions among millions of buyers, producers, and sellers. Most recently, we see this in the form of Trump’s announced intentions to ban some real estate investors from purchasing single-family homes and his proposed cap on credit card interest rates.
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On the same note, capping credit card interest rates by government decree might be popular with people contemplating hefty monthly bills, but it’s likely to have unforeseen consequences.
“Consider what happens if the government caps rates,” warned economic historian Phillip W. Magness. “Higher risk/lower credit individuals will no longer face 20% interest rates for failing to pay their credit card balances. They won’t even qualify for a credit card anymore, because no credit card provider will even accept them. So what do they do instead if they need money to cover a purchase? They take out payday loans and similar risky short term instruments with even higher interest rates and penalties.”
Government officials could also restrict or even ban (as is the case in some states) payday lenders to further their crusade for “affordability.” But if people want credit they’ll find it, even if that means going to loan sharks. Those underground lenders are more expensive than credit cards or payday loans and their collection tactics can be much less pleasant.
This letter in the Wall Street Journal by Brian Gross is excellent:
Your editorial “Invade Greenland? Why?” (Review & Outlook, Jan. 7) is right to distinguish between America’s vital security interests in Greenland and the counterproductive rhetoric of force. The island’s strategic importance—missile defense, Arctic access, and denial of Chinese or Russian influence—is real and longstanding.
But none of that requires ownership. The U.S. has many ways to secure essential interests without annexation or coercion: expanded bases, long-term defense agreements, and a stronger allied presence. The most effective signal to adversaries would not be unilateral action, but a visibly reinforced NATO posture in the Arctic—even if U.S. forces make up the bulk of it. That would send an unmistakable message to Moscow and Beijing.
Strength is multiplied, not diminished, by alliance. Greenland can be secured without undermining the alliances that make American power durable.
