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Trump Administration Is Divided Over Tax Cut for Investors Trump Administration Is Divided Over Tax Cut for Investors
(about 1 hour later)
WASHINGTON — Trump administration officials are divided over whether to give investors a big tax cut that would primarily benefit the rich before the 2020 election heats up in earnest.WASHINGTON — Trump administration officials are divided over whether to give investors a big tax cut that would primarily benefit the rich before the 2020 election heats up in earnest.
Republican senators and conservative anti-tax groups are increasingly pushing the administration to use executive authority to deliver a tax cut to investors on profits they earn when selling assets like stocks or bonds. Such a move would defy a legal opinion issued in 1992, under President George Bush, and add an estimated $100 billion to the already surging national debt.Republican senators and conservative anti-tax groups are increasingly pushing the administration to use executive authority to deliver a tax cut to investors on profits they earn when selling assets like stocks or bonds. Such a move would defy a legal opinion issued in 1992, under President George Bush, and add an estimated $100 billion to the already surging national debt.
Supporters of the plan include Larry Kudlow, the director of President Trump’s National Economic Council, who is leading a White House task force examining the proposal. Mr. Kudlow is a longtime champion of the idea, which would provide a tax break on profits known as capital gains.Supporters of the plan include Larry Kudlow, the director of President Trump’s National Economic Council, who is leading a White House task force examining the proposal. Mr. Kudlow is a longtime champion of the idea, which would provide a tax break on profits known as capital gains.
But the move has skeptics, including Treasury Secretary Steven Mnuchin, whose aides believe the Treasury Department does not have the legal authority to make the change. But the move has skeptics, including Treasury Secretary Steven Mnuchin, whose department is bound by a 1992 opinion from the Office of Legal Counsel that determined the Treasury Department does not have the authority to index capital gains to inflation by regulation.
There is also a question of politics: Democrats have already assailed Mr. Trump’s $1.5 trillion tax cut as a giveaway to the wealthy. Some Republicans, including senior Treasury Department officials, have privately expressed worry that a unilateral tax cut for investors would simply give Mr. Trump’s potential 2020 rivals more fodder for those attacks.There is also a question of politics: Democrats have already assailed Mr. Trump’s $1.5 trillion tax cut as a giveaway to the wealthy. Some Republicans, including senior Treasury Department officials, have privately expressed worry that a unilateral tax cut for investors would simply give Mr. Trump’s potential 2020 rivals more fodder for those attacks.
The plan under discussion would require the Treasury Department to 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. Such a move would lower investors’ tax bills by effectively reducing the profit earned on the sale of their assets.The plan under discussion would require the Treasury Department to 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. Such a move would lower investors’ tax bills by effectively reducing the profit earned on the sale of their assets.
Brian Callanan, who is the department’s deputy general counsel and has been nominated as its next general counsel, told staff members on the Senate Finance Committee before his confirmation hearing last week that the change could not be made without a new Justice Department memorandum declaring it legal.Brian Callanan, who is the department’s deputy general counsel and has been nominated as its next general counsel, told staff members on the Senate Finance Committee before his confirmation hearing last week that the change could not be made without a new Justice Department memorandum declaring it legal.
“In a meeting prior to his hearing,” said Ashley Schapitl, a spokeswoman for Democrats on the committee, “Mr. Callanan indicated to Finance Committee staff that he would adhere to the Office of Legal Counsel’s 1992 opinion that the Treasury Department could not unilaterally index capital gains rates to inflation. If the Treasury general counsel nominee doesn’t believe the department has authority to unilaterally give the top 1 percent nearly $100 billion in additional tax cuts, that should put the issue to bed.”“In a meeting prior to his hearing,” said Ashley Schapitl, a spokeswoman for Democrats on the committee, “Mr. Callanan indicated to Finance Committee staff that he would adhere to the Office of Legal Counsel’s 1992 opinion that the Treasury Department could not unilaterally index capital gains rates to inflation. If the Treasury general counsel nominee doesn’t believe the department has authority to unilaterally give the top 1 percent nearly $100 billion in additional tax cuts, that should put the issue to bed.”
The Justice Department did not immediately respond to a request for comment.The Justice Department did not immediately respond to a request for comment.
Capital gains come from the sale of an asset, like a stock or a house, that has grown in value over time. Gains from assets held by a taxpayer for more than a year are taxed at a maximum rate of 20 percent, which is lower than the top rate on income earned as wages. Currently, the gains are calculated using dollar amounts that are not adjusted for inflation: If an investor bought a tech stock for $10 in 1980 and sold it for $50 today, she would owe tax on a $40 capital gain.Capital gains come from the sale of an asset, like a stock or a house, that has grown in value over time. Gains from assets held by a taxpayer for more than a year are taxed at a maximum rate of 20 percent, which is lower than the top rate on income earned as wages. Currently, the gains are calculated using dollar amounts that are not adjusted for inflation: If an investor bought a tech stock for $10 in 1980 and sold it for $50 today, she would owe tax on a $40 capital gain.
Conservative groups and Republican lawmakers are encouraging Mr. Trump to reduce those potential tax bills by redefining how capital gains are calculated and adjusting the original purchase price for inflation. Using that definition, the $10 tech stock bought in 1980 would be considered to have a purchase price of $33, which is what it would have cost in today’s dollars. The investor would then owe tax on just a $17 capital gain — cutting the tax liability by more than half.Conservative groups and Republican lawmakers are encouraging Mr. Trump to reduce those potential tax bills by redefining how capital gains are calculated and adjusting the original purchase price for inflation. Using that definition, the $10 tech stock bought in 1980 would be considered to have a purchase price of $33, which is what it would have cost in today’s dollars. The investor would then owe tax on just a $17 capital gain — cutting the tax liability by more than half.
Allowing Americans to account for rising prices in determining their capital gains taxes has been a long-held aspiration for conservatives. Mr. Trump has expressed support for the idea, which would overwhelmingly benefit the top 0.1 percent of taxpayers, according to an analysis by economists at the Penn Wharton Budget Model.Allowing Americans to account for rising prices in determining their capital gains taxes has been a long-held aspiration for conservatives. Mr. Trump has expressed support for the idea, which would overwhelmingly benefit the top 0.1 percent of taxpayers, according to an analysis by economists at the Penn Wharton Budget Model.
For months, anti-tax groups such as Grover Norquist’s Americans for Tax Reform have been pressuring the Trump administration to take action on capital gains soon, before the politics of additional tax cuts complicate Mr. Trump’s re-election campaign.For months, anti-tax groups such as Grover Norquist’s Americans for Tax Reform have been pressuring the Trump administration to take action on capital gains soon, before the politics of additional tax cuts complicate Mr. Trump’s re-election campaign.
The push took on new life this week when 21 Republican senators, led by Ted Cruz of Texas, sent a letter to Mr. Mnuchin urging the move. “This treatment punishes taxpayers for the mere existence of inflation and is inherently unfair,” the senators wrote. “Indexing capital gains to inflation is another clear and sensible step on this path, and we encourage you to use your authority to effect this change.”The push took on new life this week when 21 Republican senators, led by Ted Cruz of Texas, sent a letter to Mr. Mnuchin urging the move. “This treatment punishes taxpayers for the mere existence of inflation and is inherently unfair,” the senators wrote. “Indexing capital gains to inflation is another clear and sensible step on this path, and we encourage you to use your authority to effect this change.”
Proponents say the move would lift the economy by giving investors more money to spend. In their letter to Mr. Mnuchin, the Republican senators cited an investment surge in the immediate aftermath of Mr. Trump’s signature 2017 tax cut legislation.Proponents say the move would lift the economy by giving investors more money to spend. In their letter to Mr. Mnuchin, the Republican senators cited an investment surge in the immediate aftermath of Mr. Trump’s signature 2017 tax cut legislation.
But critics argue that the administration could open the door to a variety of unintended consequences, including allowing investors to exploit the change. Steve Wamhoff, the director of federal tax policy at the Institute on Taxation and Economic Policy, wrote in a June report criticizing the proposal that indexing capital gains for just certain types of assets, such as stocks, would create new loopholes and tax shelters for investors to game.But critics argue that the administration could open the door to a variety of unintended consequences, including allowing investors to exploit the change. Steve Wamhoff, the director of federal tax policy at the Institute on Taxation and Economic Policy, wrote in a June report criticizing the proposal that indexing capital gains for just certain types of assets, such as stocks, would create new loopholes and tax shelters for investors to game.
Mr. Trump’s 2017 tax cuts stoked at least a temporary increase in economic growth, to 2.9 percent, in 2018. But that growth has not come close to making up for revenues lost to the Treasury Department from the cuts.Mr. Trump’s 2017 tax cuts stoked at least a temporary increase in economic growth, to 2.9 percent, in 2018. But that growth has not come close to making up for revenues lost to the Treasury Department from the cuts.
Combined with increased costs from paying interest on a larger national debt, the tax cuts are on pace to add nearly $400 billion to the national debt during the 2018 and 2019 fiscal years, according to data from the Congressional Budget Office. The Joint Tax Committee estimates the total cost from the cuts will exceed $1 trillion over a decade, after factoring in additional growth. The Penn Wharton Budget Model predicts that the cost could rise to $2 trillion.Combined with increased costs from paying interest on a larger national debt, the tax cuts are on pace to add nearly $400 billion to the national debt during the 2018 and 2019 fiscal years, according to data from the Congressional Budget Office. The Joint Tax Committee estimates the total cost from the cuts will exceed $1 trillion over a decade, after factoring in additional growth. The Penn Wharton Budget Model predicts that the cost could rise to $2 trillion.
Those diminished revenues, coupled with federal spending increases that Mr. Trump has signed off on, have pushed projections for the federal deficit above $1 trillion a year. Penn Wharton economists say their estimate that the capital gains indexing would add another $100 billion to deficits over 10 years is “conservative,” and that the actual amount could be higher.Those diminished revenues, coupled with federal spending increases that Mr. Trump has signed off on, have pushed projections for the federal deficit above $1 trillion a year. Penn Wharton economists say their estimate that the capital gains indexing would add another $100 billion to deficits over 10 years is “conservative,” and that the actual amount could be higher.
The Treasury Department’s authority to make the change is far from clear.The Treasury Department’s authority to make the change is far from clear.
A 1992 memorandum written by Mr. Bush’s Justice Department found that the department does not have the power to index capital gains by regulation.A 1992 memorandum written by Mr. Bush’s Justice Department found that the department does not have the power to index capital gains by regulation.
The department has been studying the feasibility of such a legally tenuous plan for more than a year, and in recent months the White House’s economic team has been convening meetings to determine whether it could be done with an executive order.The department has been studying the feasibility of such a legally tenuous plan for more than a year, and in recent months the White House’s economic team has been convening meetings to determine whether it could be done with an executive order.
During an interview in June on the sidelines of the Group of 20 finance ministers meeting in Japan, Mr. Mnuchin was circumspect about the Treasury Department’s thinking on the issue. He said that the department had taken a view on whether he had the authority to change the treatment of capital gains on his own but that he was not ready to make that determination public. He said broadly that he did not expect the administration to unveil another tax cut proposal in the next year.During an interview in June on the sidelines of the Group of 20 finance ministers meeting in Japan, Mr. Mnuchin was circumspect about the Treasury Department’s thinking on the issue. He said that the department had taken a view on whether he had the authority to change the treatment of capital gains on his own but that he was not ready to make that determination public. He said broadly that he did not expect the administration to unveil another tax cut proposal in the next year.
Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee, said on Tuesday that he expected Mr. Mnuchin to ignore “this lawless request” from Republican senators.Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee, said on Tuesday that he expected Mr. Mnuchin to ignore “this lawless request” from Republican senators.
If Mr. Trump forges ahead and tries to change the treatment of capital gains without legislation, he would face swift legal challenges.If Mr. Trump forges ahead and tries to change the treatment of capital gains without legislation, he would face swift legal challenges.
Political blowback from his potential 2020 Democratic opponents is also a certainty. Senator Kamala Harris of California has called for raising taxes on capital gains so that they are taxed at the same rate as ordinary income as part of a way to pay for her “Medicare for all” health plan. Another Democratic presidential candidate, Joseph R. Biden Jr., also recently said that current capital gains taxes were “much too low.”Political blowback from his potential 2020 Democratic opponents is also a certainty. Senator Kamala Harris of California has called for raising taxes on capital gains so that they are taxed at the same rate as ordinary income as part of a way to pay for her “Medicare for all” health plan. Another Democratic presidential candidate, Joseph R. Biden Jr., also recently said that current capital gains taxes were “much too low.”