The Trump administration is considering using the Treasury Department’s regulatory authority to cut capital gains taxes unilaterally, which would almost exclusively benefit the wealthiest 10 percent of U.S. households even as the annual federal budget deficit — not just the accumulated debt — surges well past $1 trillion.
Previous Republican and Democratic administrations toyed with the same idea before concluding that it would be unlawful — the Treasury Department’s authority just doesn’t stretch that far. So, too, has the proposal been debated and batted down by multiple Congresses. If the enormous and growing budget deficit won’t deter the president from showering wealthy Americans with more tax breaks, let’s hope that the law will.
Over at Trump’s Treasury Department, tax lawyers are examining whether the department could trim capital gains taxes by adjusting the gains’ value for inflation. Under current law, stock bought for $10,000 in 2000 and sold for $20,000 in 2017 would have a taxable gain of $10,000. But adjusting for inflation would raise the value of the stock from $10,000 to $14,600, cutting the gain almost in half.
By reducing the tax penalty faced by investors, supporters say, more people would be induced to sell long-held investments and make more capital available for new and expanding businesses. That, in turn, would promote economic growth.
This is a major policy shift, however, not an administrative tweak. And Congress has debated it repeatedly, rejecting the idea time and again because of the complexity it would add to the system. Instead, lawmakers have either excluded a portion of the gains from taxation, cut the rate at which gains are taxed, or both. In other words, Congress has already chosen a different means to address the ostensible problem that indexing capital gains for inflation would solve.
That’s all the more reason the courts would frown on the power grab the administration is considering here. But there’s a fairness argument against making such a change too. As a new report from the nonpartisan Congressional Research Service points out, economic modeling shows that 95 percent of the tax cut from indexing would go to households in the top 5 percent of U.S. incomes. Put another way, indexing capital gains would do virtually nothing for 95 percent of U.S. taxpayers, while raising the incomes of the top 0.1 percent by 1 percent to 3 percent.
One can only imagine how that sort of feed-the-rich move will play with the farmers whose exports are being strangled by Trump’s trade war.
Treasury Secretary Steven Mnuchin has said he hasn’t yet answered the question of whether his department can and should index capital gains by regulation. But the answer should be obvious. It’s no.
Editorial by the Los Angeles Times
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