Trump blasts LeBron on Twitter.
rewarding risk-taking should lead to a more revved economic engine. Lower taxes might mean higher rates of investment, which should mean more economic growth. It’s a theory.
More than a theory, it’s an axiomatic belief of Republican leadership, currently in charge of the executive and legislative branches. These beliefs drove the tax changes of December 2017. Larry Kudlow, the top economic adviser to the White House, favors lowering capital gains through inflation-adjustment.
Is it legal?
Critics object to the idea that the U.S. Treasury would enact this inflationadjustment rule, rather than have Congress pass a tax reform law. Traditionally, constitutionally, the power of taxation resides with Congress. In practice however, the executive branch often leads the charge in proposing changes to tax laws.
What has taken some commentators by surprise is the Trump administration’s proposal that they enact the tax break through executive means. Hence the claims of illegality.
Smaller-scale capital gains on home ownership, small commercial properties and small businesses already benefit from targeted tax breaks and tax deferrals like homeowner exemptions and Section 1031 exchanges. Middleclass owners of stocks would tend to own them through tax-protected
IRA and 401(k) retirement accounts, so would not pay capital gains taxes, and would not benefit from this change. This proposal seems specifically calibrated for largerscale investments and the wealthiest taxpayers.
So is it fair?
This is where societal context matters the most, at least to me.
This proposal, theoretically sound or not, legal or not, smacks of class warfare from above. Here’s the context.
If we started from a relatively equal society, then I’d be open to the theory of juicing investment through a targeted capital gains tax break. That’s not where we are.
The trend of the last 30 years has sharply increased inequality.
An estimated 65 percent of the gains from the 2017 tax law change will go to the top 20 percent of earners, who will benefit from the drop in corporate tax rates.
The Washington Post — citing a Wharton School study — found that 86 percent of the estimated $100 billion tax cut over the next 10 years would benefit the highest earning 0.1 percent of Americans, the top one-in-a-thousand wealthiest folks. $95 billion of the $100 billion tax cut would benefit the highest earning 5 percent of Americans. So, yeah, this tax cut overwhelmingly favors the people who are already well off.
We already have an income tax system that greatly favors “capital” over “labor.” What I mean by that is that if you are well off and primarily make money from your money — from investments in stocks, businesses or real estate — you generally pay a 20 percent tax rate on the money you make each year.
When you make money from your labor, however, your tax rate increases with your salary but above about $50,000 your tax rate on labor will range between 22 and 37 percent.
Finally, can we afford it?
We are far from fiscally sound. The 2017 tax change is likely to increase the deficit by $1 trillion.
By comparison, with a price tag of only $100 billion over 10 years, this proposal is only a small bad thing, but definitely not a move in the right direction.