President Trump has been notably vague about his plans for a potential second term, but he has recently proffered one idea: tax cuts. Specifically, taxes on capital gains, income taxes, and the payroll taxes used to fund Social Security and Medicare. Trump signed an executive order Sunday directing the Treasury Department to defer payroll taxes from Sept. 1 until the end of the year, leaving workers to pay the money back later.
Trump has pitched the payroll tax deferral as a boost to the economy before the November election, but the Chamber asked Treasury Secretary Steven Mnuchin in a letter Wednesday if it would be optional, whether businesses will be liable for repaying the deferred taxes, and how the White House expects the deferred withholdings to help the economy. Trump's order is "surrounded by uncertainty as to its application and implementation" and "only exacerbates the challenges" companies face, the Chamber said. "As American employers, workers, and families work to navigate the COVID-19 crisis they need clarity not more confusion," the business group added in a statement.
Trump touted his executive order in a news conference Wednesday evening, saying he would make the payroll tax holiday permanent if re-elected — something that would require an act of Congress, where there is little appetite for the idea in either party. Asked how he planned to finance Social Security and Medicare without the payroll tax, Trump suggested "we're taking it out of the general fund" and then claimed it wouldn't further blow up the ballooning budget deficit because "we're going to have tremendous growth."
Meanwhile, "Trump's advisers have sought legal guidance from White House lawyers about whether the president has the authority to eliminate certain taxes, including income and business taxes, without the approval of Congress," The New York Times reports. "The legality of such a move is dubious," because the Constitution gives Congress the sole power to set tax policy, but "the executive branch does have wide latitude" regarding tax collection, and "Trump has not been shy about pushing the boundaries of his authority." Peter Weber
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.
The Times explains how indexing capital gains to inflation would work:
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. Peter Weber