The tax cuts for the rich that the Trump administration pushed through a mostly compliant and willing Congress were evidently insufficient for the wealthiest people in the country.
According to a report from the New York Times, the Treasury Department is considering what might seem like a small wonky tweak to the tax code but would manifest as a $100 billion tax cut to the rich.
The Trump administration would like to bypass Congress to do it.
The capital gains tax, which requires people to pay a 20 percent tax on profits from selling an asset, currently calculates that profit by subtracting the initial value of the asset from the current value of the asset. If you bought stock worth a million dollars in 1990, and sell it today for three million dollars, you get taxed for 20 percent of two million dollars: $400,000.
The proposed tweak would calculate the initial value of the asset adjusted for inflation. So in the above example, the initial value of the $1 million in stock in today’s dollars would be about two million dollars, meaning the capital gain would just be one million dollars, reducing the tax bill in this case to $200,000.
So without any consultation with Congress, the executive branch is looking to goose the accounting books of wealthy traders, real estate moguls, and people around the country with large assets to pretend that the value of the things they are selling were actually worth more than they were when they bought them, and therefore should be taxed in many cases far less.
“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,” Treasury Secretary Stephen Mnuchin told the Times earlier this month.
Conservative advocates of this ploy make the argument that it would be an economic boon to drop the capital gains tax in this way. Unfortunately for them, the evidence suggests the opposite. A paper by University of Chicago’s Daniel Jacob Hemel and New York University’s David Kamin found that argument “faulty” — as was the argument that it would be legal and easily defended in court. They said “rifle-shot regulatory action that targets only the capital gains tax would be costly and regressive, and would open a number of large loopholes that allow for rampant tax arbitrage.”
The Tax Policy Center notes that this change would be needlessly complex, benefiting people who can afford expensive accountants and tax lawyers. This is not the argument the administration and their allies in Congress have made about how their tax cut strategy would benefit the middle class.
It would also make it easier to create tax shelters, not to mention increase the national debt, which already got set to grow $2.1 trillion larger thanks to the tax cut bill passed in December. Tax analysts at Trump’s favorite school, the University of Pennsylvania, found that this change would cost $102 billion over the next decade.
It’s not the first time a Republican administration has considered this tactic. In 1992, George H.W. Bush attempted the same thing, but his Treasury Department concluded that it would be illegal.
It’s favored by Trump’s chief economic adviser, Larry Kudlow, who has a history of making bad economic predictions — and before joining the Trump administration said that extremely wealthy people make great appointees because they “have no need to steal.”