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”.
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|