The White House is reportedly considering bypassing Congress to create a tax cut that would mainly benefit the wealthiest Americans.
The potential tax cut - worth an estimated $100 billion - would be aimed at indexing capital gains to inflation. Steven Mnuchin, the Treasury secretary, is determining whether his department has the potential to use its regulatory powers to grant Americans the ability to account for inflation in determining capital gains tax liabilities, according to a report from The New York Times. To Mnuchin's thinking, the Treasury Department should alter the criteria of "cost" for calculating capital gains. This would allow taxpayers to recalibrate the initial value of an asset, like property or stocks, to account for inflation at the time of sale. 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%. This bill could substantially reduce associated the taxable gain.
Mnuchin is still calculating what the impact of such a change would be, both in terms of raw economic costs and its effect on future growth. Mnuchin is also apparently evaluating whether his department actually has the authority to implement his plan without input or approval from Congress.
The proposed tax cut has already attracted several opponents. Critics say it would only add to the federal deficit, which is already approaching $1 trillion a year. New York State Senator Chuck Schumer stated that it was outrageous to propose a bill that would primarily benefit the top 1% richest Americans at a time when wages are stagnant and the wealthy are doing just fine.
Capital gains taxes are overwhelmingly paid by high earners. The taxes were not affected by the $1.5 trillion tax law that Mr. Trump signed last year. A separate study concluded that more then 97% of the benefits of indexing capital gains to inflation would go to the top 10% of income earners in America, not to government revenue or decreasing the federal deficit, as Mnuchin claims.
Of course, conservatives suggest that such a plan, even if challenged by the courts, could benefit the economy by releasing a substantial rush of asset sales once the treasury announces this. Trump and his Republican colleagues argue that it will raise revenue for the government by way of creating economic efficiencies and faster growth.
Yet Republicans have been wrong before. A separate analysis of the success of Trump's tax cut showed little no to effects on creating revenue or spurring growth to date. In fact, corporate tax receipts have plunged and the deficit has soared since their last major tax cut, according to The New York Times - though it is not without certain benefits, like boosting job growth in low-tax states.
With a slim Republican majority in the Senate right now and midterm elections coming up, the likelihood of Congress passing another tax bill this year is improbable. A unilateral action by the Treasury Department such as Mnuchin is proposing is without precedent and may prove impractical and even legally questionable. Several Democratic senators are currently urging Mnuchin to reconsider this proposal completely.