Trump Wants To Give the Wealthy Another Tax Cut, With No Vote In Congress
The Trump had administration is considering a plan to cut taxes for investors. The idea would be to index capital gains for inflation, so that rather than tax the entire gain of an asset, an investor would subtract the value of inflation, therefore reducing the taxable income.
This plan stands no chance of passage through Congress, which already absorbed a big political hit by passing a huge, regressive tax cut last year. Some right-wing Senators have introduced a bill to index capital gains for inflation, but the Republican majority isn’t bothering to push it, because it won’t get enough votes. But the beautiful part is that Trump hopes to enact another tax cut, this one even more regressive, without passing any legislation through Congress. “If it can’t get done through a legislation process, we will look at what tools at Treasury we have to do it on our own and we’ll consider that,” says Treasury Secretary Steve Mnuchin.
Do you remember the years and years of hysterical right-wing denunciations of unilateral executive action by the Obama administration? It’s possible, just possible, that they did not represent a principled belief about the limits of executive statutory interpretation.
The rationale for indexing capital gains taxes to inflation is that it’s unfair for investors to pay tax on income that only represents inflation. That is to say, if you you buy a stock for $1,000, and its value increase to $1,500, under current law, you have to pay tax on the $500 gain when you sell the stock. Under Trump’s proposal, if you suppose inflation during that period totalled 10%, then $100 of the gain would be discounted, and you would only be taxes on a $400 gain.
http://nymag.com/daily/intelligencer/2018/07/trump-wants-to-unilaterally-give-the-rich-another-tax-cut.html
The benefits of alleviating this very minor form of unfairness would be enjoyed almost exclusively by – you guessed it – the very rich. The highest-earning 1% of taxpayers would get more than 86% of the benefit of indexing capital gains for inflation.
In addition to increasing the national debt, by approximately $100 billion over a decade, and increasing inequality, indexing capital gains would probably do more to detract from economic growth than to encourage it. Capital gains already enjoy favorable treatment from the tax code, and increasing that favoritism would simple exacerbate an already strong incentive for people to find ways to convert their income into capital gains. The most effective and sweeping effort to clean up the tax code, the 1986 Tax Reform Act, eliminated the preference for capital gains. Since then, the preference has gotten wider and wider.
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