Trump administration considering $100B tax cut to the rich without approval from Congress

[Indus]

https://www.nytimes.com/2018/07/30/us/politics/trump-tax-cuts-rich.html



WASHINGTON — 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.

“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,” Mr. Mnuchin said, emphasizing that he had not concluded whether the Treasury Department had the authority to act alone. “We are studying that internally, and we are also studying the economic costs and the impact on growth.”

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 percent. If a high earner spent $100,000 on stock in 1980, then sold it for $1 million today, she would owe taxes on $900,000. But if her original purchase price was adjusted for inflation, it would be about $300,000, reducing her taxable “gain” to $700,000. That would save the investor $40,000.

The move would face a near-certain court challenge. It could also reinforce a liberal critique of Republican tax policy at a time when Republicans are struggling to sell middle-class voters on the benefits of the tax cuts that President Trump signed into law late last year.

“At a time when the deficit is out of control, wages are flat and the wealthiest are doing better than ever, to give the top 1 percent another advantage is an outrage and shows the Republicans’ true colors,” said Senator Chuck Schumer of New York, the Democratic leader. “Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation.”



LOL Don't you just love this Trump voters?

 

[Commodus]

I suspect this is more wishful thinking on Mnuchin's part than a practical reality, but it's hard not to be nervous. Hell, I wouldn't be surprised if Republicans are nervous. Few things would scream "screw you middle class" more than overriding Congress to pass a tax break that explicitly favors the wealthy. The tax cut bill at least pretended to court everyday people, even though that was never the goal... this would be a little too naked in its ambition.

 

[UberNeuman]

Boy, oh boy, do I wish I had one of those pussy pink MAGA hats to wipe my ass on right now - preferably with it still on top of a Trump supporters head.

 

[UNCjigga]

Dammit, my liberalism must be broke again. I think the proposal... actually makes sense? Would this rule apply to 401k and IRA distributions too??

If anything, this would be a nice reward for buy-and-hold Investors vs. speculators and day-traders.

 

[Dulanic]

Dammit, my liberalism must be broke again. I think the proposal... actually makes sense? Would this rule apply to 401k and IRA distributions too??

If anything, this would be a nice reward for buy-and-hold Investors vs. speculators and day-traders.

Nope, it's income won't help us a damn bit.

 

[fskimospy]

Dammit, my liberalism must be broke again. I think the proposal... actually makes sense? Would this rule apply to 401k and IRA distributions too??

If anything, this would be a nice reward for buy-and-hold Investors vs. speculators and day-traders.

I mean it’s a good idea if your goal is to continue handing giant sacks of cash to rich people as it’s a tax break that would overwhelmingly help the extremely rich and do basically nothing for regular people. It’s also a tax break that would hugely help people who use debt financed investment strategies. Ie: also the rich.

Capital gains are already taxed at a lower rate for precisely this reason. It makes little to no economic sense to further incentivize idle income production over actual work.

 

[theeedude]

That change makes sense to me, but how are they going to pay for it? I think if capital gains are taxed at ordinary income rates, then it would be OK to exempt inflation from capital gain.

 

[UNCjigga]

I mean it’s a good idea if your goal is to continue handing giant sacks of cash to rich people as it’s a tax break that would overwhelmingly help the extremely rich and do basically nothing for regular people. It’s also a tax break that would hugely help people who use debt financed investment strategies. Ie: also the rich.

Capital gains are already taxed at a lower rate for precisely this reason. It makes little to no economic sense to further incentivize idle income production over actual work.

Totally agree it's a shitty policy to be giving even more handouts to the rich (are we trickling down yet??) when that money can be better spent on a million other things. I just meant that from a pure calculation perspective, the example cited in the article seems to make economic sense to me. Capital gains *should* be considered net of inflation.

 

[UNCjigga]

That change makes sense to me, but how are they going to pay for it? I think if capital gains are taxed at ordinary income rates, then it would be OK to exempt inflation from capital gain.

Bingo. That's how it should be done.

 

[compuwiz1]

He can't do that. It would require a bill passing in congress. He can't bypass congress, or there would be bipartisan impeachment action. The POTUS cannot make tax law. If he could, there would be no need to have a congress. If such a thing were possible, he'd have just passed the last tax reform by executive order. The only legal thing he can do on this, by himself, is think and imagine. Nothing to see here...

 

[Commodus]

He can't do that. It would require a bill passing in congress. He can't bypass congress, or there would be bipartisan impeachment action. The POTUS cannot make tax law. If he could, there would be no need to have a congress. If such a thing were possible, he'd have just passed the last tax reform by executive order. The only legal thing he can do on this, by himself, is think and imagine. Nothing to see here...

Well, let's hope he understands he can't do that... this is an administration that tends to ignore laws it doesn't like.

 

[sandorski]

Well, let's hope he understands he can't do that... this is an administration that tends to ignore laws it doesn't like.

..and Congress too. Otherwise you might find he can do that.

 

[trenchfoot]

So then it falls into the hands of a Repub controlled Legislature who rammed through that wonderful tax cut plan that purportedly gave the middle class a huge tax cut when in fact all it gave the working class was the usual crumbs that eventually expires.

Yup, I'm thinking if the Repubs in the House and Senate think they can get away with it (as they always seem to do) they'll do it fiscal conservatism and the debt be damned.

And what of Trump's working class supporters? Well, if Trump says it's good for them to hand over more of their hard earned sweat/blood stained cash to the very wealthy, then by golly gee whiz it must be, right? I mean, Trump never lies right?

 

[compuwiz1]

So then it falls into the hands of a Repub controlled Legislature who rammed through that wonderful tax cut plan that purportedly gave the middle class a huge tax cut when in fact all it gave the working class was the usual crumbs that eventually expires.

Yup, I'm thinking if the Repubs in the House and Senate think they can get away with it (as they always seem to do) they'll do it fiscal conservatism and the debt be damned.

And what of Trump's working class supporters? Well, if Trump says it's good for them to hand over more of their hard earned sweat/blood stained cash to the very wealthy, then by golly gee whiz it must be, right? I mean, Trump never lies right?

Well, while what you say may be true, doesn't which ever party is in power tend to ram through bills that the other side doesn't like? It is too early tell if people are better or worse off yet. The impact of the tax reform won't be felt until the people file their 2018 tax returns, save for those who have received bonuses from their companies, citing the tax savings.

 

[trenchfoot]

Well, while what you say may be true, doesn't which ever party is in power tend to ram through bills that the other side doesn't like? It is too early tell if people are better or worse off yet. The impact of the tax reform won't be felt until the people file their 2018 tax returns, save for those who have received bonuses from their companies, citing the tax savings.

Agreed. Difference being the Repubs are focused on giving the very wealthy ever more wealth, while the Dems are focused on bringing to the middle class and the poor a better quality of life and more opportunities to share in the prosperity the nation creates for itself. Unlike Trump's working class supporters who believe his words and completely ignore the dirty deeds he commits against them, I look at the legislative record of the Repubs and it's irrefutably obvious who they're playing for suckers and who they're providing succour for.

Then there are those other ancillary factors that negatively affect the net result of the measly temporary tax cut that Trump and his fellow Repubs gave the working class in order to shut them up and keep them in their place at the lower rungs of society, where their voices can easily be drowned out and overpowered by graft and greed driven corruption, just as it is at this very moment. Basically, what little the wealthy give to the peasants, they always take back in some other underhanded way or another and then some.

Why it is that the wealthy have decided to keep grabbing for themselves as much wealth as possible at the expense of everyone else "below them" is really at the heart of the problem that now plagues our nation. Trump is the de facto figurehead for this endless grab for wealth and power and he has shown that he's more than willing to be that figurehead and he's armed with a suicidal base of working class supporters that for some fantastical reason or another, enables him to be just that way.

Eh, but I digress.

 

[Skyclad1uhm1]

LOL Don't you just love this Trump voters?

All those billions will end up in the pockets of each of his voters thanks to trickle-down economics, right?
Republican voters, and especially Trump supporters, bought into a pyramid scheme and think they will reap the benefits of it any day now.

 

[compuwiz1]

Agreed. Difference being the Repubs are focused on giving the very wealthy ever more wealth, while the Dems are focused on bringing to the middle class and the poor a better quality of life and more opportunities to share in the prosperity the nation creates for itself. Unlike Trump's working class supporters who believe his words and completely ignore the dirty deeds he commits against them, I look at the legislative record of the Repubs and it's irrefutably obvious who they're playing for suckers and who they're providing succour for.

Then there are those other ancillary factors that negatively affect the net result of the measly temporary tax cut that Trump and his fellow Repubs gave the working class in order to shut them up and keep them in their place at the lower rungs of society, where their voices can easily be drowned out and overpowered by graft and greed driven corruption, just as it is at this very moment. Basically, what little the wealthy give to the peasants, they always take back in some other underhanded way or another and then some.

Why it is that the wealthy have decided to keep grabbing for themselves as much wealth as possible at the expense of everyone else "below them" is really at the heart of the problem that now plagues our nation. Trump is the de facto figurehead for this endless grab for wealth and power and he has shown that he's more than willing to be that figurehead and he's armed with a suicidal base of working class supporters that for some fantastical reason or another, enables him to be just that way.

Eh, but I digress.

Because they can and they have a certain entrepreneurial brilliance that most of us will never understand...or they inherited it. There ought to be a law! I'm being sarcastic, but seriously, how are you gonna solve the problem to my answer, other than tax the shit out of those people and stunt their growth? The audacity of anyone who finds a way to wealth! Maybe they found a way, where the rest of us did not. Grab one of them, shadow them, then do what they do.

 

[cytg111]

Because they can and they have a certain entrepreneurial brilliance that most of us will never understand...or they inherited it. There ought to be a law! I'm being sarcastic, but seriously, how are you gonna solve the problem to my answer, other than tax the shit out of those people and stunt their growth? The audacity of anyone who finds a way to wealth! Maybe they found a way, where the rest of us did not. Grab one of them, shadow them, then do what they do.

Fact. The middleclass is THE backbone to any functional democracy.
If you find yourself in the middle class.
If you find yourself living pay check to pay check.
If you find yourself voting for $$ movement to the allready out of proportions 1 - 0.1% wealthiest... then soeone has done a jedi mind trick on you. If you cant spot the sucker the sucker is you.
Even if you are top 1%, do you want that functioning democracy to stay in place, maybe for your children? Then you need to understand how this thing works.

 

[TheVrolok]

He can't do that. It would require a bill passing in congress. He can't bypass congress, or there would be bipartisan impeachment action. The POTUS cannot make tax law. If he could, there would be no need to have a congress. If such a thing were possible, he'd have just passed the last tax reform by executive order. The only legal thing he can do on this, by himself, is think and imagine. Nothing to see here...

With all that's already gone on, you think that tax cuts for the rich would be the straw that breaks the camel's back and gets the republican congress to impeach? Riiiigghhtt.

 

[fskimospy]

Totally agree it's a shitty policy to be giving even more handouts to the rich (are we trickling down yet??) when that money can be better spent on a million other things. I just meant that from a pure calculation perspective, the example cited in the article seems to make economic sense to me. Capital gains *should* be considered net of inflation.

Possibly, but in that case a whole bunch of other tax laws would have to change as the potential for abuse is very large. First, we would need to remove the preferential capital gains rates in the current tax code and make them equal to wage taxes. Second, we would need to reform the tax code to remove various ways to deduct debt and interest paid because otherwise you can start generating lots of phantom losses this way.

http://nymag.com/daily/intelligence...ilaterally-give-the-rich-another-tax-cut.html

So sure as a basic theory it would be possible to do but what is currently being proposed is just another giant gift of money to rich people with negative economic consequences.

 

[mikeymikec]

If you find yourself voting for $$ movement to the allready out of proportions 1 - 0.1% wealthiest... then soeone has done a jedi mind trick on you. If you cant spot the sucker the sucker is you.

My personal favourite of this phenomenon in comic form:

 

[trenchfoot]

Because they can and they have a certain entrepreneurial brilliance that most of us will never understand...or they inherited it. There ought to be a law! I'm being sarcastic, but seriously, how are you gonna solve the problem to my answer, other than tax the shit out of those people and stunt their growth? The audacity of anyone who finds a way to wealth! Maybe they found a way, where the rest of us did not. Grab one of them, shadow them, then do what they do.

I think it's more along the lines of the wealthy not being so greed driven so as to wilfully corrupt our politicians into enabling these very wealthy "donors" to dictate terms to them thus allowing them to create an ever increasing imbalance of the distribution of wealth in their favor.

As an example, despite the fact the the wealthy were doing just fine at the time, the indentured Repubs in the Legislature decided that the wealthy absolutely had to have their taxes cut, their watchdogs in the gov't neutered into obsolescence and the health care provided to millions of middle class and the poor through the ACA be taken away for no good reason other than it would allow the wealthy to receive more unneeded largesse from our gov't coffers, among other things.

 

[Fern]

Possibly, but in that case a whole bunch of other tax laws would have to change as the potential for abuse is very large. First, we would need to remove the preferential capital gains rates in the current tax code and make them equal to wage taxes. Second, we would need to reform the tax code to remove various ways to deduct debt and interest paid because otherwise you can start generating lots of phantom losses this way.

http://nymag.com/daily/intelligence...ilaterally-give-the-rich-another-tax-cut.html

So sure as a basic theory it would be possible to do but what is currently being proposed is just another giant gift of money to rich people with negative economic consequences.

RE: Bolded portion above - I disagree with the author's claim regarding deductibility of interest paid. Actually paying interest is not a "phantom loss' by any measure. Payment of interest expense has a real, not paper, economic effect/cost.

Fern

 

[Fern]

-snip-
The POTUS cannot make tax law. If he could, there would be no need to have a congress. If such a thing were possible, he'd have just passed the last tax reform by executive order. The only legal thing he can do on this, by himself, is think and imagine. Nothing to see here...

I mostly agree with you. IDK what Mnuchin is thinking, but the way only I can see changes without legislation is if the current Regulations are "Legislative Regulations"

There are three types of tax regulations—legislative, interpretive and procedural. Details on each type of regulation are discussed below.
Legislative Regulations
The Internal Revenue Code authorizes the IRS to provide operational rules for specific IRC provisions. Generally, legislative regulations carry the same weight of authority as the law itself. The regulation will typically refer to its statutory authority.


Interpretive Regulations
Interpretive regulations help to explain the IRS’s position on various IRC sections. Interpretive regulations are issued under the IRS’s general authority to interpret the language of the IRC, but they are not specifically authorized by the law. They are subject to challenge if they do not reflect Congressional intent. Nevertheless, interpretive regulations often carry substantial weight of authority.

https://fclawlib.libguides.com/taxlawresearch/regs

Most Regulations are "interpretive". However, if the Regulations on cap gains are "legislative", the Treasury (not the President) could make changes that would have the full force and effect of law as if Congress had passed a law change.

Basically, "legislative Regulations" are where Congress gets lazy in writing the statute (law) and delegates it to the Secretary of Treasury to write out the details.

IDK what kind of regulations deal with cap gains and I'm too lazy to look them up, but I doubt they are legislative, and certainly not to the extent necessary for such a complicated re-write of existing tax law (too many other provisions likely impacted).

For those opposed to this proposed change - I don't think you should worry about this actually happening. It's just "noise".

Fern

 

[fskimospy]

RE: Bolded portion above - I disagree with the author's claim regarding deductibility of interest paid. Actually paying interest is not a "phantom loss' by any measure. Payment of interest expense has a real, not paper, economic effect/cost.

Fern

The paper that article is based on whose quote I believe you are referring to does not say that interest is a phantom loss. It says that interest can be used in conjunction with inflation to generate phantom losses.

The quote in question:

Imagine that a taxpayer buys an asset for $100 that is fully financed by a loan. Assume that the real interest rate is zero, that the inflation rate is 10%, and that the nominal interest rate on the loan is 10% as well. One year later, assuming no change in the real value of the asset, the asset will be worth $110 on account of inflation. If basis is indexed for inflation, the taxpayer can sell the asset for $110 and recognize no taxable gain. Assuming that the interest is properly allocable to a trade or business, the taxpayer can claim an interest deduction of $10 with no offsetting gain, despite the fact that the taxpayer is in the same pretax position as previously.

After this example you have paid $10 in interest (deductible), sold your asset for a $10 gain to pay off the interest (taxable gain reduced to $0 by inflation indexing) and booked a $10 tax deduction for yourself despite the real change in the value of the asset being $0.

So you ‘made’ money approximately equal to your marginal tax rate by investing in an asset that had a rea change in value of $0. Ie: work for tax lawyers like the authors of the paper, a waste of everyone else’s money.