Trump confirmed that his administration may try a legally dubious manoeuvre to create a $100 billion tax cut that overwhelmingly benefits the wealthy

Getty ImagesPresident Donald Trump

  • President Donald Trump told Bloomberg that he is considering indexing capital gains taxes to inflation.
  • The move would result in a $US102 billion tax cut over the next 10 years that would overwhelmingly benefit wealthier Americans.
  • But the idea is legally dubious.

President Donald Trump confirmed Thursday that he is mulling a tax move that would save America’s wealthiest billions of dollars.

In an interview with Bloomberg, Trump said he was considering indexing capital gains taxes to inflation, a legally dubious move that would result in a $US102 billion tax cut over the next 10 years.

“I’m thinking about it,” Trump said.

Reports in July indicated that the Trump administration was considering the move, which would index the cost of the purchase of an asset to inflation. Here’s how it would work:

  • An investor who made a $US100,000 real-estate investment in 1990 and sold today for $US1 million must pay taxes on the $US900,000 difference.
  • But under Trump’s new plan, the $US100,000 investment would be adjusted for inflation.
  • Based on the consumer price index inflation rate between 1990 and today, the value of the initial investment would be adjusted to about $US198,000.
  • That means the investor would owe taxes on the $US802,000 difference, a significant savings compared with current law.

According to the Penn-Wharton Budget Model, over 97% of the benefits from such a tweak would go to the top 10% of income earners in the US, 86% of the benefit would go to the top 1% of income earners, and 63% of the benefit would go to those in the top 0.1%.

Capital gains tax inflation adjustment distributionAndy Kiersz/Business Insider

Additionally, according to a report from the Congressional Research Service, the tax cut would do almost nothing to help boost the economy.

While Trump is considering the idea, it may not be possible – legally or politically. Since the Senate is split 51 to 49 in favour of Republicans, Democrats could block any legislation that includes the change under the chamber’s rules. Given that reality, the Trump administration was considering making the change unilaterally by adjusting Treasury Department regulations.

But President George HW Bush’s administration looked into doing the same thing, and the Justice Department determined that the move was illegal.

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