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White House Wants to Cut Capital Gains Tax

The Trump administration may sidestep Congress to get another tax cut passed.

Claudio Santisteban/dpa/picture-alliance/NewscomClaudio Santisteban/dpa/picture-alliance/Newscom Fresh off the accolades for last year's tax cuts, the Trump administration is mulling another one. This time the target is the capital gains tax, which the administration may try to reduce without approval from Congress by changing the definition of investment profits to take inflation into account.

The capital gains tax applies to profits from long-term investments. If you buy a stock for $10 and sell it for $110, for instance, you would owe capital gains tax on the $100 in profit. The rate depends on how much non-investment income you earn that year. Individuals at the lower end of the income scale do not have to pay any capital gains tax, while those in the middle pay 15 percent and high earners pay 20 percent.

Under the policy the Trump administration is considering, the gain would be adjusted for inflation, so investors would pay taxes only on the real profit they earn. Treasury Secretary Steven Mnuchin told an interviewer at the Group of 20 summit last month in Argentina that his department might be able to make this change through regulation.

"If it can't get done through a legislation process," Mnuchin told The New York Times, "we will look at what tools at Treasury we have to do it on our own, and we'll consider that." Lawrence Kudlow, director of the National Economic Council, also supports the idea.

The idea is controversial because it disproportionately benefits the wealthy, who pay the vast majority of capital gains taxes. Wharton economic analyst John Ricco calculates that "the top one percent of tax units would receive more than 86 percent of the tax cuts," although he adds that the administration's proposal would do little to "meaningfully change the distribution of tax burden."

While indexing capital gains to inflation could promote economic growth, it's not such a good idea for the president to impose the policy unilaterally. When conservatives tried that under President George H.W. Bush in 1992, National Review's Ramesh Ponnuru notes in a Bloomberg Opinion column, they met with strong resistance from the Treasury and Justice departments. Even if President Donald Trump has the Treasury Department on his side this time around, enacting a major tax change without congressional approval would invite legal challenges.

Another issue is the tax cut's fiscal impact. Last year's tax cuts are projected to add $1.5 trillion to the deficit during the next 10 years, and that's assuming Congress lets the cuts expire in 2025, which it is unlikely to do. Ricco estimates that indexing the capital gains tax to inflation would cost the government an additional $102 billion in revenue during the same period. That's a small hit compared to last year's tax cuts, but every reduction in revenue that's not offset with cuts in spending will make the current fiscal hole that much deeper. Instead of shrinking government, Republicans are passing the burden on to future taxpayers, a dangerous and reckless policy.

Photo Credit: Claudio Santisteban/dpa/picture-alliance/Newscom

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  • Hamster of Doom||

    Ricco estimates that indexing the capital gains tax to inflation would cost the government...

    Fuck those guys, get a real job.

  • The Laissez-Ferret||

    ^This. Anytime someone says "costs the government" it's hard for me to listen to anything else. The government isn't a business or individual, it's a leech sucking the blood out of the people.

  • Inigo Montoya||

    Exactly.

    If the government finds itself with less money coming in, regardless of the reason, they should do what ALL THE REST OF US DO and tighten their damn belts a bit!

    So you lost your job and found a new one that pays less than before? You give up that vacation, or downsize to a smaller home, or sell the boat, or whatever. Maybe you cancel your cable TV or forgo the latest technology toy. But not the government, they never ever cut back anything. They don't even slow the increase in spending year-over-year because in their minds that equals a cut.

    I have zero sympathy for those poor government officials. They need a reality check.

  • Jerryskids||

    "If it can't get done through a legislation process," Mnuchin told The New York Times, "we will look at what tools at Treasury we have to do it on our own, and we'll consider that."

    They got a pen and a phone, don't they?

    I remember how we all applauded when Obama said this same thing, I'm sure we'll all applaud Trump the same way.

  • Happy Chandler||

    There are already legal opinions that say it is not following the law,

  • Hamster of Doom||

    You know, I think I'm cool with this. Short-term effects are likely renewed stock investment which, yes, yes, will mostly involve upper crusties. The long term effects are to torch the budget, and since we know no politician will risk his career to rein in spending, this may be mathematically the most efficient way.

    Rip that bandaid off. Consequences are some of the best teachable moments.

  • loveconstitution1789||

    Trump is limited on what he can do, since the Executive does not make the laws.

    If he can administratively lower taxes based on current law from Congress, then that is what he plans to do.

    Lowering taxes will not 'torch' the budget. Congress not cutting spending 'torches' the budget.

  • chipper me timbers||

    Exactly LC

  • Hamster of Doom||

    Imagine, if you will, that nothing I said was in any way derogatory toward Trump and in every way derisive of Congress.

    I know, questioning Trump seems to be a sensitive issue for some. If we save that for when I *am* questioning Trump, it'll be more efficient.

  • loveconstitution1789||

    Saying that Trump can do not wrong is bad as well as saying that Trump can do no right.

    TDS is when you hide your distain for Trump in a critique of something that is good for the USA.

    Prison reform is good for the USA but plenty of those with TDS will be against it because Trumpworked with Congress to make it happen and it would be a partial accomplishment for Trump.

  • Sometimes a Great Notion||

    Trump is limited on what he can do, since the Executive does not make the laws.

    What he can do is not sign the next Omnibus (in 2019?). Cut Spending! Eliminate Agencies! Go back to the sequester if nothing else.

  • Happy Chandler||

    All that, and LOSE ELECTIONS!

    Why do you think spending went up under Reagan, Bush, and now Trump? If you keep waiting for a Republican to cut spending, I've got a bridge to sell you.

  • loveconstitution1789||

    You are right Trump should veto the huge spending increases.

    He also knows what will happen. Democrats and RINOs will override the veto because TDS and his chipping away at the powers that be gets shuddered. These two groups of traitors are already ganging up against Trump prefious budget cuts and cuts to federal agencies.

    If the media covered behind the scenes and reported honestly, we might have abetter picture of why Trump is not vetoing the omnibus bills.

  • Fist of Etiquette||

    ...the administration's proposal would do little to "meaningfully change the distribution of tax burden."

    But oh what a boon to the outrage industry.

  • loveconstitution1789||

    The capital gains tax applies to profits from long-term investments. If you buy a stock for $10 and sell it for $110, for instance, you would owe capital gains tax on the $100 in profit.

    Capital gains tax also are taxed at different rates depending on if you hold the stock for more than a year or not.

  • loveconstitution1789||

    Nikhil Sridhar, you need to step up your game.

  • Patrick Henry||

    And the effective rate can be higher than the 20% he mentions if you're subject to the Alternative Minimum Tax.

  • chipper me timbers||

    I've not been a big fan but if he can corporate tax rates ,capital gains in the same term. Fuck he's the best president we've had in a long time.

  • chipper me timbers||

    "if he can *cut*"

  • Rhywun||

    "Socialists would rather have the poor poorer provided the rich were less rich."

    I can't say it any better than that.

  • Inigo Montoya||

    Which is why they suck. The entire philosophy is based on nothing more than envy.

    If they actually wanted to raise the living standards of all the poor in the name of fairness, I might say the sentiment is at least noble, although unrealistic. But they instead just want to impoverish the rich will also become poor. That's idiotic!

    Imagine if you went to the doctor because you were sick and the doctor's "treatment" was to make your entire family and community sick so that you would no longer have to feel particularly unfortunate.

  • Happy Chandler||

    The fact that you can't come up with anything better than a straw man says more about you than anyone else.

  • Happy Chandler||

    The concentration of wealth is bad for the country and the economy. Wealth concentration was highest right before the great depression and again at the great recession. As the wealth has concentrated since Reagan, the median wage has not advanced, except in the late 90's after the Clinton tax hikes. That's why the working class got left behind.

    All boats were lifted in the 90's. Tax hikes on the rich got us there.

  • Microaggressor||

    The grownups are talking about planet earth, not your alternate universe, as interesting as it sounds.

  • Happy Chandler||

    Where am I wrong? We were told that the Clinton tax hikes would bankrupt us, we got a boom.
    We were told that W's deregulation and tax cuts would make everyone rich. Wages were stagnant and we got the worst recession in nearly a century.

    Now we're told we need Bushonomics, but even MORE!

  • Unicorn Abattoir||

    Uh huh. And all of this happened in a vacuum.

  • Happy Chandler||

    The fact that the actual world doesn't live up to your libertarian fantasies hurts, doesn't it?
    We need a new FDR, we got a new Hoover.

  • ||

    We need a new FDR, we got a new Hoover.

    I don't think these two people were as different in their outlooks on economics as you seem to think.

  • Unicorn Abattoir||

    Oh, you simple little troll. Ascribing income growth in the '90s and '00s solely to tax laws. Clinton benefited greatly from the commercialization of the nascent internet. That's what lifted all boats. Bush had the impact of 9/11 and the Iraq war, financial collapse of the banking sector that had nothing at all to do with tax rates, and catching the tail end of the economic cycle.

    But stay in your vacuum. Take a nice, deep breath.

  • Philadelphia Collins||

    I'll have what you're smoking.

  • MJBinAL||

    You are a retard.

    Wish I had kinder things to say, but there it is.

    "Take hikes on the rich" "All boats were lifted in the 90"s"

    It is hard to imagine a stupider conclusion than tax hikes lifted all boats.

  • Happy Chandler||

    How about tax cuts and deregulation led to a financial crisis and brought us all down?

    God, the truth must hurt.

  • ||

    How about tax cuts and deregulation led to a financial crisis and brought us all down?

    Can you explain how tax cuts and deregulation led to a financial crisis?

    Because I can explain how lenders were pressured into initiating high-risk, sub-prime mortgages that they were then immediately able to turn around and sell to un-skeptical GSEs, thus artificially creating unsustainable demand for real estate that then caused a bubble in the real estate market that inevitably burst once we hit the first bump in the road of "ever-rising" property values.

    I'm not saying your version isn't possible - it's just not quite so clearly related.

  • JoeBlow123||

    I don't think tax cuts had much to do with 2008. Wishful thinking.

    I do happen to agree with you though that wealth concentration is dangerous in a democracy. So is an entrenched intellectual elite, a nomenklatura if I may, that spawns more of their own much as an aristocracy would. There are a number of signs that I believe are pointing us towards some sort of quasi-aristocracy and these are just two of them.

  • loveconstitution1789||

    HUD lending using Fannie Maae and Freddie Mac was a huge reason for the housing market being skewed the way it was.

    It was also every American's fault that participated.

    Some of saw it coming and made big market wins off it. I saw it coming because corrupt crony capitalism always leaves red flags. When the default rate shot up, the term ninja loan was joked about, and banks started playing hide the default under cups the jig was up.

  • Inigo Montoya||

    The phrase "the concentration of wealth" implies there is a finite set of wealth and it can either be concentrated in some fashion or spread around somewhat evenly.

    But I don't see how wealth is finite at all. It seems to be more like something that is constantly growing, although the rate of growth does change from time to time.

    To say that the concentration of wealth was worse right before the depression or last big recession, even if true, doesn't necessarily mean that it was a causative factor. I've read many theories, from banking policies, to trade restrictions, to a vastly overvalued stock market as being causes for the Depression. Blaming wealth concentration is a new one.

  • loveconstitution1789||

    The Lefties think there is a finite amount of wealth and they want it all.

  • chipper me timbers||

    "Instead of shrinking government, Republicans are passing the burden on to future taxpayers, a dangerous and reckless policy."

    Really? Who cares if those fuckers go broke. Not my problem.

  • Jim Logajan||

    Money will be created to pay the bills, which is inflationary. Inflation is a hidden tax you will pay. One way our another, the debt gets paid.

  • chemjeff radical individualist||

    That's a rather short-sighted point of view.

  • Happy Chandler||

    The reason that the capital gains tax rate is lower than the marginal rate is to take into account inflation. It does this in a much simpler way than inflation indexing.

    When tax simplification runs into more money for rich people, guess which wins? Is it worth it to me to figure out the inflation cost index of my investments? Probably not. For someone with $10M of stock? More likely.

  • Patrick Henry||

    Actually, it's lower mainly because of the double taxation caused by corporate income taxes.

  • Happy Chandler||

    You're thinking about the dividend taxes. Wrong tax cut for the rich!

  • MJBinAL||

    No, profits by corporations are taxed before they are distributed as dividends. Although some captial investment can be deducted to reduce profits taxed, in general it does not allow all capital investment to be deducted.

    As a result, the money distributed to stockholders in the form of dividends has already been taxed. Ergo, the since the stockholders are required to pay taxes on them as well, the taxes were paid twice.

    The same thing applies to the increased value of the corporation. It is assumed that the increased value is due to invested profits that were already taxed, so the capital gains taxes paid represent a second tax on the same profit.

    Once again ... retard.

  • Happy Chandler||

    There is so much wrong in that...I can't even...

    The stupid hurts.

  • Happy Chandler||

    First of all, capital gains is much broader than corporate investments. But, all capital gains are subject to inflation. You pay capital gains if you invest in commodities, or real estate, or if you sell a pass-through entity.
    Second, you have capital gains even when there are no corporate profits, and thus no corporate tax.

  • creech||

    Exactly. I buy stock index shares over twenty years then, maybe, sell all to move into bonds when I near retirement.
    Much easier to pay a lower rate than to have to figure 20 year tiers of inflation on purchases and re-invested dividends.
    Another idea I heard floated is to eliminate the corp. tax entirely and tax all dividends and eventual capital gains the same as ordinary income.

  • swampwiz||

    The inflation cost (i.e., as a portion) can be abstracted out to a simple table in the tax instructions.

  • Robert||

    enacting a major tax change without congressional approval would invite legal challenges


    The horror!

  • Echospinner||

    So to get it right.

    In a 401k or basic IRA you pay no current income tax on what you put in. When you pull money out after retirement age it is taxed as earned income. You pay no capital gains on your investment earnings.

    Capital gains happen if I just bought stock or something like real estate investment from post tax dollars and want to cash in. I might have this wrong. It is taxed on a different rate.

    A house is capped at $250/500k in profit if you have had it more than a year. Above that you need to pay 10-20% extra tax. So this proposal would eliminate those taxes.

    Just trying to understand what is proposed here.

  • loveconstitution1789||

    It depends. A roth IRA where you pay tax up front, all gains are not taxed and you are not taxed on higher future tax rates. This is great right now because tax rates went down. The gamble is that future tax rates could be lower. They wont but could be.

    Your 401k, you can choose pretax or after tax contributions depending on the 401k plan.

    For pre-tax IRA and 401k plans, your disbursements are considered income and depending on your total income puts you in a certain tax bracket. 401k plans can require disbursements over shorter periods, so it might shoot your income amount higher than you wanted.

  • swampwiz||

    The Roth IRA is a great vehicle for having assets but still being eligible for means-tested benefits like SNAP & ObamaRomneyHeritageCare.

  • loveconstitution1789||

    Trump is proposing changing the rule of asset cost by adjusting for inflation for tax purposes.

    This would make the taxable difference between purchase price and selling price smaller, thereby lowering capital gains and the associated tax.

    paid $100,000 for a stock 10 years ago. Sold it for $200,000. That initial cost of $100k is adjusted for inflation to $150k, so your capital gains for tax pirposes is $50k instead of $100k

  • Patrick Henry||

    If your point is that earnings on retirement accounts should be indexed for inflation also, I agree with you. As should all investment earnings.

  • Happy Chandler||

    This has nothing to do with retirement accounts. There is no cost basis involved there. Either you pay taxes up front (Roth) and pay no taxes at all on earnings or you pay no taxes at all until you withdraw, when it counts as income, not capital gains.

  • Echospinner||

    So help me understand.

    I have hit the magic age of 65 for example. I have account and plan to withdraw 30k per year.

    My tax now as I understand is that I will be taxed as earned income at a rate of 30k. Not a bad deal since I paid no tax when it went in and I was earning income. If I am not working I have lower tax rate now so good deal. If the investments went well it is worth in digital numbers more. Those mean nothing until I use them to buy something. It does not tie in into inflation directly. It only reflects current income tax rates.

    This law does not change that as I understand. It is more about short term investments. High roller stuff.

    Then again Trump thinks you need picture ID in the grocery. When was the last time he took a cart and shopped at Krogers or Piggly Wiggly.

    It is cute when the younger workers ask for my ID for the wine or beer. There is enough grey in the beard for the folks who have been working there a while. They know me.

  • MJBinAL||

    Trump could not go shop anywhere on his own now, nor any time in the last 20 years, He would be so mobbed by people he would never get out of the store.

    One of the many (to my mind) downsides of being famous or infamous!

  • Happy Chandler||

    It only affects non-retirement trading.

    Say, I buy $10 million of Apple stock. In five years, it's worth $20 million.

    Current law, I pay 20% of the $10 million appreciation. So, I would pay $2 million.
    Proposed change: Find all of the inflation numbers published in the past five years. Get out your calculator, compound the inflation, figure out what your inflation adjusted cost basis is. You'll probably add between 10-20%, so your cost basis becomes $11-12 million, and you save a couple hundred grand.

    Your average stock investor has a non-retirement account somewhere in the five figures. It's not worth the calculations, especially if you use dollar-cost averaging and the purchases are spread over time.

  • Happy Chandler||

    In my case, I have Vanguard mutual funds. A decent amount in my non-retirement account. I set up an automatic purchase, so every paycheck I buy a bit of my funds. I have 26 purchase periods every year.
    Whenever I sell any, I get the cost basis that they calculate, and the purchase date gets recorded as "Various". If I had kept records of every purchase, and ordered the sales most efficiently, I could maybe save a couple dollars in taxes, but it wouldn't be worth the effort, so I just use what they send me and a purchase date of various. How would I calculate the inflation adjustment? Not worth it to your average purchaser.

    When you make a million dollar investment, it suddenly becomes worth it, and you're just paying your accountant anyway. So, it helps accountants by making more paperwork, and saves the richest some money in investments they were making anyway. Your average small investor wouldn't have enough to bother.

  • swampwiz||

    What would be the point with indexing short-term investments? The only way an investment could take advantsge of indexing is to be a long-term investment.

  • SteveJay27||

    This issue was studied by the Treasury during the G.H. W. Bush administration. It CANNOT be done by regulation. A new law is needed.

    See: https://fas.org/sgp/crs/misc/R45229.pdf, where on page seven it notes:

    Then-Attorney General William P. Barr, in making the point that the role is as a detached legal advisor, used the indexation issue as an example, stating that "the question was clear, can we, simply through administrative action, index capital gains?" and that "not only did I not think we could, I did not think that a reasonable argument could be made to support that position."

  • Enemy of the State||

    No tax cut ever added a nickel to any deficit or the debt...

  • target||

    considering an inflation tax was neither enacted by congress nor does it have any control over the annual changes in inflation, I do not see this as a tax cut, merely a propper adherence to current tax policy.

    It should also be done for interest income as you are taxed federal income tax on your paycheck, put it in a bank, earn 1% interest, but suffer a govt calculated inflation loss of 2% apr, so you loose 1% of your savings outright, then they charge income tax again on the other 1% that you managed to reimburse yourself with against the loss to inflation.

    Of course this is just using the govt's calculation for inflation which was changed to not cover basic necessities like energy or food, which when following the old rules, brings the actual inflation rate up to about 7%.

  • swampwiz||

    In response, watch the Democrats go to an asset tax. There is no question that taxes are going up; the only question is which ones.

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