WASHINGTON -- President Donald Trump's administration is considering bypassing Congress to grant a $100 billion tax cut mainly to the highest income earners, a legally tenuous maneuver that would cut capital-gains taxes and fulfill a long-held ambition of many investors and conservatives.
Steven Mnuchin, the Treasury secretary, said in an interview on the sidelines of the Group of 20 summit meeting in Argentina this month 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."
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, that person would owe taxes on $900,000. But if that investor's original purchase price was adjusted for inflation, it would be about $300,000, reducing the person's taxable "gain" to $700,000. That would save the investor $40,000.
The move would likely face a court challenge.
"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 Sen. Charles Schumer, D-N.Y., the minority leader. "Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation."
Capital-gains taxes are overwhelmingly paid by high earners, and they were untouched in the $1.5 trillion tax law that Trump signed last year. Independent analyses suggest that more than 97 percent of the benefits of indexing capital gains for inflation would go to the top 10 percent of income earners in the United States. Nearly two-thirds of the benefits would go to the super wealthy -- the top 0.1 percent of U.S. income earners.
Making the change would be a bold use of executive power -- one that President George H.W. 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, chairman of the National Economic Council, has long advocated it.
A Section on 07/31/2018