Trump officials studying capital- gains tax break

WASHINGTON — The Trump administration 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 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 Mnuchin 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.

“There has been a great deal of interest in this provision for a long time,” said a White House official who spoke on condition of anonymity. “Treasury is currently evaluating the economic impact and whether it can be achieved without legislation.”

Indexing capital gains for inflation would reduce federal revenue by about $102 billion over a decade, according to the PennWharton 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 proposal 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, are leading an effort to extend and expand the $1.5 trillion tax cut. But GOP lawmakers had mixed views on whether the administration could lower capital-gains taxes without the approval of Congress.

“I think they would need Congress to do that,” Senate Finance Committee Chairman Orrin Hatch, R-Utah, told reporters.

But other Republicans welcomed the chance for further tax cuts.

Sen. Pat Toomey, R-Penn., a chief proponent of lower taxes, said such the move would free up investment and “would be very good for the economy.”

Cutting capital-gains taxes was one of the few items on Republicans’ wish list that didn’t make it into their tax legislation last year.