Big, new tax cut for wealthy considered
White House mulls unilateral action to bypass Congress.
WASHINGTON — The White House is considering bypassing Congress to grant a $100 billion tax cut mainly to the wealthy, a legally tenuous maneuver that would cut capital gains taxation and fulfill a long-held ambition of many investors and conservatives.
Steven Mnuchin, the Treasury secretary, said in an interview on the sidelines of the Group of 20 summit meeting in Argentina this month that his department was studying whether it could use its regulatory powers to allow Americans to account for inflation in determining capital gains tax liabilities. The Treasury Department could change the definition of “cost” for calculating capital gains, allowing taxpayers to adjust the initial value of an asset, such as a home or a share of stock, for inflation when it sells.
Capital gains taxes are determined by subtracting the original price of an asset from the price at which it is sold and taxing the difference, usually at 20 percent. 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.
“It is something that we’re going to consider; we’ve talked to Congress about it,” Mnuchin said. “There have been a bunch of letters to the president and I on Treasury doing this independent of Congress.”
Mnuchin emphasized he had not concluded whether he had the authority to make such a move but that it was being studied internally, along with the economic costs and impact on growth.
The move would face a near-certain court challenge. It could also reinforce a liberal critique of Republican tax policy at a time when Republicans are struggling to sell middle-class voters on the benefits of the tax cuts that President Donald Trump signed into law in late 2017.
“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 1 percent another advantage is an outrage and shows the Republicans’ true colors,” said Sen. Chuck Schumer, D-N.Y., the minority leader. “Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation.”
Capital gains taxes are overwhelmingly paid by high earners, and they were untouched in the $1.5 trillion tax law that Trump signed in 2017. Independent analyses suggest that more than 97 percent of the benefits of indexing capital gains for inflation would go to the top 10 percent of income earners in the United States. Nearly two-thirds of the benefits would go to the super wealthy — the top 0.1 percent of U.S. income earners.
Making the change by fiat would be a bold use of executive power — one that President George H.W. Bush’s administration considered and rejected in 1992, after concluding that the Treasury Department did not have the power to make the change on its own. Larry Kudlow, chairman of Trump’s National Economic Council, has long advocated it.
Advocates for the plan say that even if it is challenged in court, it could still goose the economy by unleashing a wave of asset sales. “No matter what the courts do, you’ll get the main economic benefit the day, the month after Treasury does this,” said Ryan Ellis, former tax policy director at Americans for Tax Reform.
Liberal tax economists see little benefit in it beyond another boon to the alreadyrich. “It would just be a very generous addition to the tax cuts they’ve already handed to the very wealthy,” said Alexandra Thornton, senior director of tax policy at the liberal Center for American Progress, “and it would play into the hands of their tax advisers, who would be well positioned to take advantage of the loopholes that were opened by it.”