Soon after Donald Trump was elected, he was filmed strolling into a swanky New York City restaurant and telling fellow patrons, “We’ll get your taxes down — don’t worry.” And he’s sticking to it. After already signing a tax bill that disproportionately benefits corporations and the wealthy, Trump’s administration is reportedly contemplating a unilateral move that would cut taxes, mainly for rich people, by $100 billion.
Alan Rappeport and Jim Tankersley at the New York Times reported late Monday that the administration is considering bypassing Congress and attempting to cut capital gains taxes, a maneuver that is legally tenuous but, if undertaken, would overwhelmingly benefit the wealthy.
Treasury Secretary Steven Mnuchin said in an interview at the Group of 20 summit in Argentina in July that the department was “studying whether it could use its regulatory powers to allow Americans to account for inflation in determining capital gains tax liabilities,” Rappeport and Tankersley reported. Officials are looking at whether they can change how “cost” is defined for calculating capital gains.
A capital gains tax is imposed when an investor sells an asset, such as a stock. In the United States, the capital gains tax rate is usually 20 percent, plus a 3.8 percent tax in net investment income to fund Obamacare. Rappeport and Tankersley lay out how the change Treasury is considering would work with the 20 percent rate:
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 Times report led to immediate backlash from Democrats.
“At a time when the deficit is out of control, wages are flat, and the wealthiest are doing better than ever, to give the top one percent another advantage is an outrage and shows the Republicans’ true colors,” Senate Minority Leader Chuck Schumer said in a statement. “Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation. If this proposal were to be considered in the Congress, it would not pass.”
Sen. Elizabeth Warren (D-MA) hit back too.
.@realDonaldTrump wants to go around Congress & hand $100 billion to his rich buddies on top of $1.5 trillion he gave away to billionaires & big corporations last year. DC works great if you’re rich & powerful. How about a gov't that works for everyone? https://t.co/Go0He6UoKl— Elizabeth Warren (@SenWarren) July 30, 2018
Whether such a maneuver would be legal is not clear — even Mnuchin emphasized to the Times that he wasn’t sure it is. George H.W. Bush’s administration considered and rejected the idea in 1992, but Larry Kudlow, President Trump’s top economic adviser, has long advocated for indexing capital gains to inflation.
If the Treasury were to attempt it, it would almost certainly face an immediate legal challenge.
But that might not matter, at least in the short term, for investors poised to take advantage of it, who would likely rush to sell off assets. And if the policy were to stick, the Penn Wharton Budget Model estimates government revenues would be reduced by $102 billion over a decade, with 86 percent of benefits going to the top 1 percent and 63 percent of benefits going to the top 0.1 percent.
Trump can’t stop cutting taxes for rich people
The $1.5 trillion tax bill passed by the GOP in December cut taxes for most Americans, including the middle class, but it heavily benefits the wealthy and corporations.
According to estimates from the Center on Budget and Policy Priorities, the top fifth of earners get 70 percent of the bill’s benefits, and the top 1 percent get 34 percent. The new tax treatment for “pass-through” entities — companies organized as sole proprietorships, partnerships, LLCs, or S corporations — will mean an estimated $17 billion in tax savings for millionaires in 2018. American corporations are showering their shareholders with stock buybacks this year, thanks in part to their tax savings.
Trump and other Republicans have also begun discussing plans for a second round of tax legislation. The House Ways and Means Committee last week released a framework for “Tax Reform 2.0,” which includes making permanent the 2017 tax cuts for families and individuals (right now, they expire in 2025). It also lists helping new businesses write off more of their initial costs.
In an interview with Fox Business host Maria Bartiromo aired at the start of July, Trump said a second tax plan would be on the way by October. He said the proposal would be aimed at the middle class — then offered the example of reducing the corporate tax rate further. The 2017 bill reduced the corporate rate from 35 percent to 21 percent, and he said he wants to get it to 20 percent.