It was about two months after Donald Trump signed the Republican tax-cut package into law that the president started talking about “Phase Two.” Trump and GOP leaders apparently enjoyed passing tax breaks for the wealthy so much, they thought they’d do it all again, ahead of this year’s midterm elections.
To that end, several House Republican leaders unveiled some ideas just last week for more tax breaks, which they said they’d prioritize before voters head to the polls in the fall. The trouble, of course, is that the package stands almost no realistic chance of success, and there’s nothing to suggest there’s any real public appetite for more tax cuts, anyway.
But the Trump administration isn’t convinced it necessarily needs Congress. The New York Times reported overnight:
The Trump administration is considering bypassing Congress to grant a $100 billion tax cut mainly to the wealthy, a legally tenuous maneuver that would cut capital gains taxation 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.
Though the Treasury secretary said he hadn’t yet concluded that he has the authority to act unilaterally, the approach is clearly on the table for him.
“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 told the Times, adding that officials at his cabinet agency are “studying” the process.
Let’s unpack this, because it appears the administration is cooking up quite a scheme.
On the surface, the core question of indexing capital gains taxes to inflation has been around for a while. Mother Jones’ Kevin Drum summarized the debate nicely:
Let’s say that ten years ago you bought $1,000 in shares of DrumCo stock. Naturally it’s a well-managed company and today those shares are worth $1,300. You sell them for a $300 profit, and pay a nice, low 20 percent capital gains tax of $60.
But then you start to think. What about inflation? That $1,000 in 2008 is the equivalent of $1,150 today. Your real profit is only $150, and $60 represents a capital gains tax of 40 percent. What a rip off! Part of your “profit” is really just keeping up with inflation. Why do you have to pay any taxes on that?
Under current tax law, inflation is irrelevant. Lawmakers have generally concluded that it’s too tricky to change the law, so they’ve instead created a low capital-gains tax rate to make investors happy.
The Trump administration apparently believes that’s not quite good enough. Mnuchin is exploring the possibility of tying a low capital-gains rate with an inflation adjustment, in the process creating a new massive tax break.
And what’s wrong with that? A few things, actually. First and foremost, the policy is profoundly regressive, delivering nearly all of the benefits to the very wealthy. The very rich don’t need yet another tax break, and polling suggests such a move would be wildly unpopular.
Second, it’s very likely that the Trump administration can’t legally make major changes to our federal system of taxation without congressional approval. If Mnuchin and his team seriously pursued such an approach, the litigation would be immediate, and there’s no reason to assume courts would approve of the gambit.
And third, I seem to recall Republicans screaming bloody murder any time the Obama administration tried to use its executive authority to pursue its priorities without Congress. I long ago lost count of how many times GOP leaders condemned the Democratic president as a dictatorial tyrant, running a “lawless presidency,” for even considering policymaking outside the legislative process.
Can we safely assume Republicans will be similarly hysterical now, or do they apply different standards to White Houses controlled by their own party?
Postscript: If GOP leaders are suddenly concerned about inflation indexes, can we have a related conversation about the minimum wage?