Trump blasts LeBron on Twit­ter.

San Antonio Express-News (Sunday) - - Sports -

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.

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