Tax break on capital gains floated

White House considering another way to assist wealthy citizens.

WASHINGTON — The White House is studying the idea of implementing a big tax break for wealthy Americans by reducing the taxes levied on capital gains, but no decision has been made yet on whether to proceed.

Administration officials said Tuesday that Treasury Secretary Steven Mnuchin prefers deferring to Congress. But he does have his department studying the economic impact of such a change and the legality of proceeding without congressional approval.

The change would involve taxing capital gains — profits on investments such as stocks or real estate — after taking into account inflation, which would lower the tax bite. Capital gains taxes are currently determined by subtracting the original price of an asset from the price at which it was sold and taxing the difference without adjusting for inflation.

For example, a stock purchased in 1990 for $100,000 and sold today for $300,000 would produce a $200,000 capital gain. That amount, taxed at the top capital gains rate of 23.8 percent, would result in a tax bill of $47,600. However, if the $200,000 gain was trimmed to just $103,000 by adjusting for inflation over the past 28 years, the tax bill would be $24,514.

Indexing capital gains for inflation would reduce federal revenue by about $102 billion over a decade, according to the Penn-Wharton Budget Model. The Congressional Research Service has estimated that about 90 percent of the benefits would go to the top 1 percent of households.

The New York Times and the Washington Post reported Tuesday that the proposal was under active consideration by the administration. It has long been supported by Larry Kudlow, head of the president’s National Economic Council. Mnuchin, however, has signaled caution in approaching the idea.

Republicans, led by House Ways and Means Committee Chairman Kevin Brady, is leading an effort to extend and expand the $1.5 trillion tax cut President Donald Trump pushed through Congress last December.

“If it can’t get done through a legislative process, we will look at what tools at Treasury we have to do it on our own and we’ll consider that,” Mnuchin said in an interview with the Times in which he emphasized that he has not yet concluded that Treasury has the authority to act alone.

“We are studying that internally, and we are also studying the economic costs and the impact on growth,” Mnuchin told the Times.