The Trump administration is considering bypassing Congress to grant a $100 billion tax cut, a legally tenuous maneuver that would cut capital gains taxation and fulfill a long-held ambition of many investors and conservatives, The New York Times reports.
In an interview on the sidelines of the Group of 20 summit meeting in Argentina earlier this month, Treasury Secretary Steven Mnuchin confirmed 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.
“If it can’t get done through a legislation process, we will look at what tools at Treasury we have to do it on our own and we’ll consider that,” Mnuchin said, emphasizing that he had not concluded whether the Treasury Department had the authority to act alone. “We are studying that internally, and we are also studying the economic costs and the impact on growth.”
Currently, capital gains taxes are determined by subtracting the original price of an asset from the price at which it was sold and taxing the difference, usually at 20%. 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.
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 Trump signed into law late last year. Capital gains taxes are overwhelmingly paid by high earners, and they were untouched in the $1.5 trillion tax law.
Independent analyses suggest that more than 97% of the benefits of indexing capital gains for inflation would go to the top 10% of income earners in America. Nearly two-thirds of the benefits would go to the super wealthy—the top 0.1% of American income earners.
