The Trump administration is proposing a huge tax cut for the rich that bypasses Congress

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published 31 July 2018

The Treasury Department is considering changing the definition of "cost" in determining how the IRS calculates capital gains, or investment income, effectively handing a $100 billion tax cut to the wealthiest Americans without approval from Congress. Treasury Secretary Steven Mnuchin told The New York Times he's considering allowing capital gains to be adjusted for inflation, and "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."

Conservatives have long pushed for indexing capital gains to inflation, and White House National Economic Council director Larry Kudlow is a longtime proponent. But efforts to enact it in Congress have faltered, in part because more than 97 percent of the benefits would go to the top 10 percent of income earners and two-thirds would go to the top 0.1 percent, according to independent analyses. The George H.W. Bush administration considered and rejected making the change by regulatory fiat in 1992, judging that such a move wouldn't survive court challenge.

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Currently, capital gains taxes are determined by subtracting the original price of an asset from the price at which it was sold and taxing the difference, usually at 20 percent. If a high earner spent $100,000 on stock in 1980, then sold it for $1 million today, she would owe taxes on $900,000. But if her original purchase price was adjusted for inflation, it would be about $300,000, reducing her taxable "gain" to $700,000. That would save the investor $40,000. [The New York Times]

Indexing capital gains to inflation would lower federal tax revenue by $102 billion over a decade, according to a Wharton School of Business analysis, and the Congressional Research Service said in July that any economic stimulus from the change would be canceled out by additional federal debt, already growing rapidly due to the GOP's recent $1.5 trillion tax cut.

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Peter has worked as a news and culture writer and editor at The Week since the site's launch in 2008. He covers politics, world affairs, religion and cultural currents. His journalism career began as a copy editor at a financial newswire and has included editorial positions at The New York Times Magazine, Facts on File, and Oregon State University.