- President Donald Trump is considering a plan to allow investors to index capital-gains taxes to inflation, according to a new report.
- This would result in a roughly $US100 billion tax cut over the next 10 years, with much of the benefit going to wealthier Americans.
- The Trump administration is said to be considering circumventing Congress to implement the plan, a strategy sure to face legal challenges.
President Donald Trump is mulling a plan to go around Congress and implement a technical tweak to the tax code that would result in a nearly $US100 billion tax cut, according to a new report.
The New York Times reported Monday that the Trump administration could adjust rules around capital-gains taxes, allowing investors to adjust the value of their investments for inflation. Such a move would result in a tax cut of roughly $US100 billion over the next 10 years:
- Under current rules, an investor who bought an asset in 2000 for $US1 million and sold it today for $US5 million would be taxed on the $US4 million difference.
- But under Trump’s plan, the original value of the asset would be adjusted for inflation.
- For tax purposes, the value of the purchase in 2000 would be adjusted to just over $US1.4 million, meaning the taxable amount would be $US400,000 less than under current rules.
The plan would overwhelmingly benefit wealthier Americans. According to the Penn-Wharton Budget Model, 97.5% of the $US102 billion tax decrease over the next 10 years would go to the top 10% of income earners in the US, 86% of the total would go to the top 1%, and 63% of the total benefit would go to just the top 0.1% of income earners.
Pegging capital gains to inflation has been a long-term goal for Republicans but was not a component of their massive tax bill that was passed in December. GOP lawmakers and tax-reduction advocates have argued that the cut would incentivise increased investment and result in an economic boost.
Given the difficulty facing any legislative change to the rule, Trump’s plan would instead facilitate the change through an adjustment of Treasury Department rules.
Such a move would most likely draw a legal challenge, as it would reinterpret the idea of “cost” under the Revenue Act of 1918. According to The Times, President George H.W. Bush’s administration considered a similar plan in 1992 but decided there were no legal grounds to support the shift without new legislation.
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