Trump Considering Unilateral $100 Billion Tax Cut On The Wealthy

We may have an idea what was the (leaked) reason for today's selloff in Treasurys, which pushed the 10Y yield just shy of 3.00%.

According to the NYT, the Trump administration is considering a $100 billion unilateral tax cut meant to mainly help the wealthy, and is hopes to bypass Congress in implementing it "a legally tenuous maneuver that would cut capital gains taxation and fulfill a long-held ambition of many investors and conservatives."

However, despite the NYT's alarmist take, Trump's proposal actually does make some sense: what it calls for is to inflation-adjust one's long-term cost basis when calculating capital gains tax. Considering that various welfare programs like Social Security are already indexed for Cost of Living Adjustments, the idea is probably not that outlandish, especially if inflation were to suddenly explode higher.

Here's how it would work.

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 percent. 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.

Treasury Secretary Steven Mnuchin hinted at the idea during last weekend's G-20 meeting in Buenos Aires, when he told reporters that 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.”

To be sure, any such move would face near-certain court challenges, not to mention cause further turmoil inside the bond market, which is already rather displeased with Trump's recent busting of the US deficit. It would certainly 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 President Trump signed into law late last year.

Chuck Schumer was, as usual, ready to hand out criticism:

“At a time when the deficit is out of control, wages are flat and the wealthiest are doing better than ever, to give the top 1 percent another advantage is an outrage and shows the Republicans’ true colors,” said Senator Chuck Schumer of New York, the Democratic leader. “Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation.”

Still, no matter whether an inflation adjustment is justified or not, it is indeed the case that high earners would be the biggest beneficiaries of a reduction in capital gains taxes, which however were untouched in the $1.5 trillion tax law that Trump signed last year.

According an independent analyses cited by the NYT, more than 97% of the benefits of indexing capital gains for inflation would go to the top 10 percent of income earners in America, while nearly two-thirds of the benefits would go to the super wealthy — the top 0.1 percent of American income earners.

In other words, the rich are about to get even richer.

Liberal tax economists see little benefit in it beyond another boon to the already rich.

“It would just be a very generous addition to the tax cuts they’ve already handed to the very wealthy,” said Alexandra Thornton, senior director of tax policy at the liberal Center for American Progress, “and it would play into the hands of their tax advisers, who would be well positioned to take advantage of the loopholes that were opened by it.”

And while the proposal is sure to have a contested fate in Congress - and the courts - two questions remains: how would Trump pass such a law, and who would pay for it.

Making the change by fiat would be a bold use of executive power — one that President George Bush’s administration considered and rejected in 1992, after concluding that the Treasury Department did not have the power to make the change on its own. Larry Kudlow, the chairman of the National Economic Council, has long advocated it.

Conservative advocates for the plan say that even if it is challenged in court, it could still goose the economy by unleashing a wave of asset sales. “No matter what the courts do, you’ll get the main economic benefit the day, the month after Treasury does this,” said Ryan Ellis, a tax lobbyist in Washington and former tax policy director at Americans for Tax Reform. So... would this wave of asset sales also lead to the market crash that Trump so desperately dreads?

The decades-long push to change the taxation of investment income has spurred a legal debate over the original meaning of the word “cost” in the Revenue Act of 1918, and over the authority of the Treasury Department to interpret the word in regulations.

“I think we ought to look at not penalizing Americans for inflation,” said Representative Kevin Brady of Texas, the Republican chairman of the Ways and Means Committee, who said he would like to see the Treasury Department make the change through regulation.

* * *

As for who pays, the answer is simple: yield starved investors across the globe who remain inert to any suggestion that  the ballooning US debt load could lead to a crisis.

According to the Wharton budget model, indexing capital gains to inflation would reduce government revenues by $102 billion over a decade, with 86 percent of the benefits going to the top 1 percent. A July report from the Congressional Research Service said that the additional debt incurred by indexing capital gains to inflation would most likely offset any stimulus that the smaller tax burden provided to the economy.

Trump's proposal is surprising as taxation of capital gains was not featured in the framework for the second round of tax cuts, released by the Ways and Means Committee last week. It is highly unlikely that Congress will pass another tax bill this year because of the slim Republican majority in the Senate.

Comments

I Am Jack's Ma… Mike Rotsch Mon, 07/30/2018 - 17:24 Permalink

But if her original purchase price was adjusted for inflation

I buy a stock in 1980, I pay in 1980 dollars. There is zero rationale to credit me for having paid more than I actually did.

This is a case where the Left will be able to shriek about ‘tax cuts for the rich’ and be right.

It’s a gimmick some here will inanely agree with, but just another means to further drive doen the *effective* rate paid by the ultra rich, relative to the middle class - who get keep getting rammed in the ass by both parties.

In reply to by Mike Rotsch

Baron von Bud curbjob Mon, 07/30/2018 - 17:50 Permalink

This is classic trickle-down thinking. Give the rich a pile of money and they'll spend and the little people will get some scraps. Wait till the recession and market decline hits and pension plans get crushed. The Democrats will remind America of Trump's give aways to the rich and corporations. They'll take both houses of congress.

In reply to by curbjob

Free This Bud Dry Mon, 07/30/2018 - 17:55 Permalink

So what, when has a beggar or poor man ever given any of you a job? You think rich people live in a fucking vacuum? They spend money, pay taxes just like you do. They invest in business, the market (casino lol), etc.

This eat the rich mentality is bullshit. I am not a rich man. Middle class Joe, who works his ass off, just like they do.

You could tax the rich 100% and it would not change a thing, the money would be gone in a month.

If you want socialism or communism, go for it, you can all be equally poor and eat chicken broth every day.

I will ask you this. Do you think the poor stay poor for a lifetime in America (as a whole), and do you think the rich stay rich, as a whole?

HELL freakin' no! Come up with a good idea and you can be rich. Make a bad investment and you can be poor. It is the individual. People tend to stay rich, because they work hard and protect their investments. Are there silver spoon assholes out there, hell yes, but they tend to burn out and die, cause they didn't work for it and squander it, or kill themselves with drugs.

In my 59 years I have seen a lot, done a lot, made a lot, and lost a lot. Thank God for Jesus Christ first, for Capitalism and the Constitution, is all I can say.

There are some evil fuckers (and they're not all rich guys either) out there, I'd love to see them pay, and one day they will, they will burn in hell for their sin!

Where the FUCK has socialism or communism EVER worked, name a place! Cuba is a shithole, so is NK, Europe is a socialist pit too. China is quasi-Captialist-Communist but is just one big centrally planned malinvestment. Russia, is trying to be Capitalist, I will give them that, but they still have an oligarchy. Hell, even in America we have developed into an Oligarchy to a degree.

A whole lotta fixin needs to be done here too! We have a SPENDING problem in .gov

Shit I am just gonna also put this here too (as I hate long posts):

There are factions all over the world, and yes in America, typically Democrats, that want regime change here or there, I am a conservative, and could care less who rules other places. I want to change the fact the US meddles in other's affairs. I have a more Libertarian bent in that regard. I want the socialists/communists OUT of my land! I want the invaders OUT of my country!

I worship Jesus Christ, and he was a Jewish Rabbi, but I am a Christian, and that is my first and foremost concern, worldly issues come and go, I could lose all my possessions and could care less. I hope to enter the Kingdom of Heaven, God willing. All this bullshit going on is just that, we are on the face of this earth for a blink of an eye, I concern myself with eternal life.

All of this arguing back and forth, is actually irrelevant, in the grand scheme of things. I like to discuss stuff, and call bullshit when I see it.

A lot of people on this board, are brainwashed jew and America haters, I feel sorry for you. Stuck on socialism, a losing ideology!

I am not afraid to stand up and say all of this, nor do the down arrows bother me, nor the insults, the name calling, none of it. I am a free thinker and will not be caged by any meme. I have developed quite the following of haters here, anti-jew, anti-America, anti-Capitalist, and a blow my nose in your general direction, piss off, if you can't handle it.

I insult people right back, no skin off my back!

I will add, there are a lot of fucked up people in the world, jew, gentile, muslim, hindu, buddist, atheist, agnostic, etc, etc, black, white, brown, yellow and red...plenty of blame to all around, it ain't just the jews!

EDIT - I will add this. The top 10% pays 90% of ALL taxes in America (this is all taxes, not just income tax now)!

Now, where did I put that stinking banana?

In reply to by Bud Dry

Oldguy05 techpriest Tue, 07/31/2018 - 00:40 Permalink

My pay is directly deposited into the bank. I have been withdrawing most of it that is not used to pay immediate bills. At a point in the past I withdrew $2200 and had to sign a form after already swiping my card and entering my pin.

I asked why and was told it was policy for anything over 2K. I then withdrew less than 2k when I took further withdrawals. Last week I asked to withdraw $1900 and was again asked to sign the form. I protested and asked why and was told it was now policy for anything over 1K. I should have said gimme 900 and I'll be back tomorrow but I signed the form. Later, at home after thinking about it, I drew down my remaining balance to about 400 by purchasing gold. I'm not structuring or money laundering or doing anything illegal. I'm done with this crap. I'll never sign another form like that again. I'll never leave more than the amount of my bills with a couple hundred left over in the bank again!

I'd like a break if I have to sell PMs. I have next to nothing else that will give me a capital gain at this point.

In reply to by techpriest

RedBaron616 bluez Tue, 07/31/2018 - 06:29 Permalink

You aren't tell us very much. How many hours are worked a week? If she is self-employed, then she can work as many hours as she likes. What state does she work in? State taxes figure in dramatically.

In 2018, an individual would have to make $82,500 in order to pay 24% tax rate to the IRS. If she only worked 40 hours a week, her income would be $31,200, which is subject to 12% per 2018 IRS rates. Perhaps she has high withholding. Plus, there is Social Security withholding and Medicare withholding. You can thank Socialism for the last two.

The FDIC is bank deposit insurance. Try to keep up.

In reply to by bluez

ratpack1968 bluez Tue, 07/31/2018 - 08:16 Permalink

Your friend must be cleaning a lot of houses to fall into the 25% bracket after the standard deduction. Perhaps he/she should operate the endeavor under the table like so many others in the housecleaning trade. Lower income people are equally clever about skirting the IRS - there is an entire (untaxed) underground economy among those in the trade services with lots of bartering and cash income goes under-reported. A sales or consumption tax would go a long way to capturing this.

In reply to by bluez

land_of_the_few Free This Tue, 07/31/2018 - 02:27 Permalink

But strangely the ex-communist countries are still full of the same people, give or take a bit of natural.population growth up to '91 and turnover.

If someone was trying to "kill them all off", they weren't very good at it.

However they did mysteriously "lose" very many of their ethnic minorities, including almost all Germanics. And that was before the Communist era.

 

In reply to by Free This

RedBaron616 Is-Be Tue, 07/31/2018 - 06:21 Permalink

The Holy Bible has caused no such thing. Note that those who used the Bible as their excuse for crime and death also kept the Bible in a language which the common people could not understand. In other words, keep them ignorant so we can tell them the Bible justifies whatever we do.

Atheists have killed far more: Hitler, Mao, Lenin, Stalin, Pol Pot, Castro all had no use for the God of the Bible. When you believe that man was not made by God, then men are just a collection of cells and you can kill them by the millions without so much as a night without sleep.

In reply to by Is-Be

nmewn helltothenah Mon, 07/30/2018 - 19:31 Permalink

Actually, you're digressing all over the place...lol...because you don't want to answer my original question, which is not surprising. Will you or won't you?

////

I'll take your non-answer as a no, you're either too stupid to know or you are refusing to answer or a communist.

////

Let the record show that after an hour in waiting for ANY response to your drivel I also called you a communist and you refused to respond to that as well.

Fuck you 

In reply to by helltothenah

techpriest Singelguy Mon, 07/30/2018 - 22:13 Permalink

You've figured out the true nature of the article's rhetoric: This type of break will benefit *anyone* who saves money for a long period of time, and interestingly enough, I wonder if this would extend to money market accounts, where you would be taking a loss relative to inflation.

Sure, there are a very small number of people who will get an outsized benefit out of this, but in terms of people affected, most of the people affected are not what you would cal wealthy. I'm also puzzled at the entire notion that the government is seen as a great equalizer, when it created most of the inequality to begin with.

For that matter, when did someone having more than you become such an unbearable outrage? IMO there are more important things to worry about.

In reply to by Singelguy