Trump, Economic Team To Meet On Capital Gains Tax Cut, Which Would Hand $100 Billion To The Rich

Donald Trump will meet with his economic team on Wednesday to again discuss the prospect of indexing capital gains to inflation, the Wall Street Journal says, citing three people familiar with the situation.

This is a topic that’s come up again and again over the past two years. It has the support of Larry Kudlow, Stephen Moore and, really, anybody who owns a lot of stock (so, rich people).

According to estimates from Penn-Wharton, “such a policy would reduce individual tax revenues by $102 billion during the next decade [and] because income from capital gains is concentrated among high-income households, the benefits of this change would accrue primarily to the upper end of the income distribution”.

Read more: Why Cut Payroll Taxes When You Can Just Hand $100 Billion To The Wealthy?, Trump Wonders

To reiterate a point we’ve made on innumerable occasions, the move is legally dubious, or at least to the extent the administration would try to go around Congress and redefine ‘cost’ by regulatory fiat.

“The president’s advisers will discuss the legal and regulatory issues associated with the move, and present the president with a range of broader options about cutting taxes”, the Journal said Wednesday.

This comes amid a full-court-press from the administration to dispel the notion that the US economy is on the brink of rolling over. A new poll shows six in 10 Americans expect a recession in the next year, the latest in a series of surveys which together suggest voters are losing faith in Trump’s stewardship of the largest economy on the planet.

Another idea discussed internally is a payroll tax cut, but because the benefits of such a move would accrue to working families and middle-income earners, it might receive only lukewarm support from the GOP, especially if it balloons the deficit further. (Remember: Republicans are fine with fiscal irresponsibility as long as the wealthy reap the rewards, but as soon as anybody proposes spending to benefit the middle-class, the fiscal hawks come out.)

Ted Cruz penned an Op-Ed last month arguing for indexing capital gains to inflation. The move, Cruz said, would unleash “untapped potential across our economy”.

That almost surely isn’t true. What it would do, though, is prompt investors to sell long-term holdings to lock in the massive tax break before it’s (almost invariably) reversed and it would also put the US on an even more perilous fiscal path by reducing tax revenue.

In any event, this is just more of the same: Trump is looking for ways to juice the economy, and when it comes to the options he’s inclined to consider, anything that favors the rich over everyone else goes to the front of the line.

As Wharton noted last year, “the top one percent of tax units would receive more than 86 percent of the tax cut”.

Late Wednesday, an aide said Trump has decided against the move – for now.

We’ll leave you with the actual projected numbers:

AGI percentile Share of tax cut received Percent change in after tax income Share of federal tax burden
Current law Tax cut
0-20 0.0% 0.00% 0.2% 0.2%
20-40 0.0% 0.00% 0.9% 0.9%
40-60 0.1% 0.00% 5.8% 5.8%
60-80 0.9% 0.00% 16.5% 16.6%
80-90 1.5% 0.01% 15.9% 16.0%
90-95 2.5% 0.02% 13.0% 13.0%
95-99 8.9% 0.07% 19.1% 19.1%
99-99.9 23.0% 0.30% 15.0% 14.9%
99.9-100 63.1% 0.98% 13.6% 13.5%

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9 thoughts on “Trump, Economic Team To Meet On Capital Gains Tax Cut, Which Would Hand $100 Billion To The Rich

  1. Take this as confirmation that our Fair Orange Leader is manipulating the stock market for his and his corrupt friends and family’s benefit. Why wouldn’t our grifter in chief square the circle by cutting capital gains taxes on his manipulated gains??

  2. It has the support of Larry Kudlow, Stephen Moore and, really, anybody who owns a lot of stock (so, rich people).
    Walt, you should’ve added “anybody who owns a lot of stock and commercial real estate……”
    A cap gains tax cut will STUFF Trump’s and Pretty Boy Kirshner’s pockets full of cash.
    And we should always raise eyebrows at anything supported by Kudlow, Moore, and Cruz

  3. No question where the benefits would go, but it seems to be a rational argument: Why pay taxes on nominal gains that were eroded by inflation? That said, inflation has been pretty low the last couple decades. The impact would have been much larger for the 70’s and 80’s.

  4. One main issue is in understanding what inflation is and isn’t and to understand how flawed data collection is as it relates to inflation, i.e., few people understand inflation and thus defining what it is, is an essential first step in understanding how it will impact taxation. This is far from simple and there is no doubt that the trump people are looking at ways to abuse their powers to enrich themselves, versus propose a policy to help all Americans.

    In regard to definitions of words, a recent case dances around this very issue of how to define terms:

    ==> Kagan explained that “[a] court must carefully consider the text, structure, history, and purpose of a regulation before resorting to deference,” and courts should exhaust all the tools of statutory interpretation before deciding a regulation is truly ambiguous and deserving of deference. This condition is meant to keep agencies from altering meaning that was actually intended to be otherwise.

    Secondly, to qualify for Auer, the agency’s reading of the rule must be reasonable. So a court does actually get to review the agency’s interpretation for reasonableness.

    And finally, before an agency interpretation qualifies for Auer, the court must review the legitimacy of the agency’s interpretation. Does the interpretation deserve controlling weight? To explain further: was it an “official” agency view? Does it implicate the agency’s substantive expertise? Was it “fair and considered judgement” on the part of the agency?

    1. Absolutely. I lived in Brazil in the mid-70’s, when they tried to index inflation with Monetary Correction. A great attempt, but flawed and ultimately, failed.

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