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

[fskimospy]

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"


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

It is kind of unbelievable that any administration would even float such an idea though, especially after their last tax plan turned out to be exactly the huge giveaway to rich people that it was predicted to be.

 

[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:



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.

There is no phantom loss.

Let's use their example:

#1. No loan involved. I buy the stock for $100. There is $10 inflation. I sell the stock for $110. What's the result? I have $110 cash from the sale.

#2. Loan involved. Same as above except I have a loan. I sell the stock for $110. I paid the $10 interest expense. What's the result? I have $100 ($110 sales proceeds less $10 interest expense paid).

#1 results an economic effect of $110. #2 has a net economic effect of $100. These are not 'paper numbers', these are actual cash numbers. Because #2 is $10 worse off, #2 gets a deduction.

Currently, if I borrow money to purchase an investment, e.g., stock, and sell the stock for what I paid for it I have zero gain (taxable or otherwise). My interest cost is deductible (depending upon the asset the deduction will subject to limitations). So, the only change 'suggested' here is that inflation won't be taxed. I see no opportunities for a phantom loss, certainly none is demonstrated or even implied in the author's example.

Edit: I'll add these comments to help understanding:

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. See my example above. If I currently have a zero change in my asset value I still deduct the interest deduction.

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.

No, you didn't make money "approximately equal to your marginal tax rate". You have failed to take into account the interest expense actually paid. Let's assume a tax rate of 20%. I paid $10 of interest and receive a 'refund' (or tax reduction) of $2. After taxes, I'm still out $8.

Fern

 

[child of wonder]

Sounds like a good idea to me but we can't afford more tax cuts like this right now.

 

[Thebobo]

Well of course.

 

[fskimospy]

There is no phantom loss.

Let's use their example:

#1. No loan involved. I buy the stock for $100. There is $10 inflation. I sell the stock for $110. What's the result? I have $110 cash from the sale.

#2. Loan involved. Same as above except I have a loan. I sell the stock for $110. I paid the $10 interest expense. What's the result? I have $100 ($110 sales proceeds less $10 interest expense paid).

#1 results an economic effect of $110. #2 has a net economic effect of $100. These are not 'paper numbers', these are actual cash numbers. Because #2 is $10 worse off, #2 gets a deduction.

While #2 is worse off they are not actually out any money, they just didn’t *make money*. Under current law they would get no deduction. Under this proposed change they would net a ‘loss’ of $10 despite not actually losing any money. All you need for a big tax advantage here is a lender with a lower tax rate than the borrower and you can generate a shitload of fake losses through ‘loans’ on assets that don’t change in value.

Currently, if I borrow money to purchase an investment, e.g., stock, and sell the stock for what I paid for it I have zero gain (taxable or otherwise). My interest cost is deductible (depending upon the asset the deduction will subject to limitations). So, the only change 'suggested' here is that inflation won't be taxed. I see no opportunities for a phantom loss, certainly none is demonstrated or even implied in the author's example. Fern

So in other words you’re saying two professors of tax law got it wrong and you got it right? While that is certainly possible I don’t think it’s particularly likely. Do you think it’s more probable you haven’t thought through all the potential for tax shenanigans here?

Edit: full paper here in case you’re interested.

https://poseidon01.ssrn.com/deliver...0127107113073119098076116103074116086&EXT=pdf

 

[fskimospy]

Sounds like a good idea to me but we can't afford more tax cuts like this right now.

Still struggling to see why anyone thinks that’s a good idea. Capital gains are already taxed at a reduced rate specifically because they are more vulnerable to inflation. Why should you make capital gains inflation protected while keeping their preferential tax rate?

If you want to protect capital gains from inflation you need to change a bunch of other things too. Otherwise you’re just writing yet another huge check to rich people.

 

[Fern]

While #2 is worse off they are not actually out any money, they just didn’t *make money*.

Yes, they are 'out money", as my math demonstrates (Edit: after considering, I think you're viewing the inflation piece as tax free income. If the inflation piece is viewed as a basis adjustment it would more properly be viewed as an additional investment in the asset. I.e., a basis adjustment.)

Under current law they would get no deduction.

Yes they would.

So in other words you’re saying two professors of tax law got it wrong and you got it right? While that is certainly possible I don’t think it’s particularly likely. Do you think it’s more probable you haven’t thought through all the potential for tax shenanigans here?

Yeah, I think they may have it wrong. But I must also add that at this point we simply don't know. I'll explain.

Their assertion, and by extension yours, only makes sense if the 'inflation' portion is considered "tax exempt" income (or nontaxable, pick whichever term one prefers).

E.g., If I take out a loan to purchase municipal bonds my expenses (interest in this case) to carry/acquire those bonds are nondeductible because the "income" is non-taxable. If the income is nontaxable the expenses incurred to generate that income are also nontaxable (i.e., nondeductible). Most find this intuitive.

However, the proposal seems more to me that inflation is not "income". This is completely different than "nontaxable income". If this difference needs more explaination LMK.

I would think that the inflation piece is going to be treated under tax law as an "adjustment to basis" ("basis" is generally what you paid for the investment asset). These adjustments serve to reduce or increase the gain in the calculation of the sale. In this case the basis would be increased resulting in a smaller gain (or larger loss). I.e., no re-characterization as nontaxable income.

Now, until we see how the Treasury effects this, i.e., the language they propose etc, we cannot know for sure if the Treasury is proposing this change as a basis adjustment or, as the authors seem to expect, nontaxable income.

Edit: full paper here in case you’re interested.

https://poseidon01.ssrn.com/deliver...0127107113073119098076116103074116086&EXT=pdf

Thanks.

Fern

 

[Jhhnn]

Yes, they are 'out money", as my math demonstrates



Yes they would.




Yeah, I think they may have it wrong. But I must also add that at this point we simply don't know. I'll explain.

Their assertion, and by extension yours, only makes sense if the 'inflation' portion is considered "tax free" income.

E.g., If I take out a loan to purchase municipal bonds my expenses (interest in this case) to carry/acquire those bonds are nondeductible because the "income" is non-taxable. If the income is nontaxable the expenses incurred to generate that income are also nontaxable (i.e., nondeductible). Most find this intuitive.

However, the proposal seems more to me that inflation is not "income". This is completely different than "nontaxable income". If this difference needs more explaination LMK.

I would think that the inflation piece is going to be treated under tax law as an "adjustment to basis" ("basis" is generally what you paid for the investment asset). These adjustments serve to reduce or increase the gain in the calculation of the sale. In this case the basis would be increased resulting in a smaller gain (or larger loss). I.e., no re-characterization as nontaxable income.

Now, until we see how the Treasury effects this, i.e., the language they propose etc, we cannot know for sure if the Treasury is proposing this change as a basis adjustment or, as the authors seem to expect, nontaxable income.




Thanks.

Fern

It's Steve Mnuchin. Who do you think benefits? The pampered Rich, that's who-

In other words, a person in the top 0.001 percent income bracket -- who would have an adjusted gross income of at least $62,000,000 -- pays the nearly same effective tax rate as somebody in the top 20 percent bracket who makes $85,000 in adjusted gross income.

https://www.washingtonpost.com/news...or-real/?noredirect=on&utm_term=.91386aeb31cb

That was before the latest round of tax cuts. Let's give 'em another one! MAGA!

 

[fskimospy]

Yes, they are 'out money", as my math demonstrates (Edit: after considering, I think you're viewing the inflation piece as tax free income. If the inflation piece is viewed as a basis adjustment it would more properly be viewed as an additional investment in the asset. I.e., a basis adjustment.)

Yes they would.

To be clear they aren’t out any money in the way that money is defined basically anywhere else in our society. If I put my money in a savings account and inflation reduces its value I don’t get a check from the government to cover my losses. Nobody gives me a tax deduction for the money I keep in my wallet either.

Yeah, I think they may have it wrong. But I must also add that at this point we simply don't know. I'll explain.

Their assertion, and by extension yours, only makes sense if the 'inflation' portion is considered "tax exempt" income (or nontaxable, pick whichever term one prefers).

E.g., If I take out a loan to purchase municipal bonds my expenses (interest in this case) to carry/acquire those bonds are nondeductible because the "income" is non-taxable. If the income is nontaxable the expenses incurred to generate that income are also nontaxable (i.e., nondeductible). Most find this intuitive.

However, the proposal seems more to me that inflation is not "income". This is completely different than "nontaxable income". If this difference needs more explaination LMK.

I would think that the inflation piece is going to be treated under tax law as an "adjustment to basis" ("basis" is generally what you paid for the investment asset). These adjustments serve to reduce or increase the gain in the calculation of the sale. In this case the basis would be increased resulting in a smaller gain (or larger loss). I.e., no re-characterization as nontaxable income.

Now, until we see how the Treasury effects this, i.e., the language they propose etc, we cannot know for sure if the Treasury is proposing this change as a basis adjustment or, as the authors seem to expect, nontaxable income.

Thanks.

Fern

Yes, as compared to current law it is considered tax exempt income. Doesn’t there seem to be a huge potential for abuse and tax arbitrage here?

 

[frozentundra123456]

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.

I agree with you about the republicans, but not really sure the democrats give a rat's butt about the middle class either. They seem to be more focused on helping the disadvantaged and promoting whatever liberal cause is popular at the moment.

 

[SP33Demon]

I see no problems with adjusting for inflation. Hell, gov workers get cost of living adjustments every year so why shouldn't people who invest in our country's great businesses also be compensated accordingly?

 

[Jhhnn]

I agree with you about the republicans, but not really sure the democrats give a rat's butt about the middle class either. They seem to be more focused on helping the disadvantaged and promoting whatever liberal cause is popular at the moment.

Bothsiderism is so lame. The GOP leadership only cares about the financial elite. That's what the lie of trickle down ideology is all about. That's what this thread is about.

 

[SP33Demon]

It's Steve Mnuchin. Who do you think benefits? The pampered Rich, that's who-



https://www.washingtonpost.com/news...or-real/?noredirect=on&utm_term=.91386aeb31cb

That was before the latest round of tax cuts. Let's give 'em another one! MAGA!

Invest more and maybe it'll help you. Or just spend it on beer, a bag of chips, and a new iphone and new smart tv like the idiots do.

 

[Brainonska511]

I see no problems with adjusting for inflation. Hell, gov workers get cost of living adjustments every year so why shouldn't people who invest in our country's great businesses also be compensated accordingly?

Why do they need additional special treatment? Capital gains taxes are already lower than ordinary income taxes, partly under this idea that you have to account for inflation. Now you just want rich people to double dip.

 

[Jhhnn]

Invest more and maybe it'll help you. Or just spend it on beer, a bag of chips, and a new iphone and new smart tv like the idiots do.

And duh-vert, of course. This tax cut would have zero benefit for half the population & is just another GOP giveaway to the ultra wealthy.

It'll all trickle down, right?

 

[child of wonder]

Still struggling to see why anyone thinks that’s a good idea. Capital gains are already taxed at a reduced rate specifically because they are more vulnerable to inflation. Why should you make capital gains inflation protected while keeping their preferential tax rate?

If you want to protect capital gains from inflation you need to change a bunch of other things too. Otherwise you’re just writing yet another huge check to rich people.

Only long term capital gains. I suppose it begs the question on the spirit of intent behind taxing long term investments more favorably than short term ones?

Is it to encourage long term investment over short term? Then inflation certainly takes a chunk out of the profit of long term investment.

Is it to offset inflation? Then this proposed change would be redundant.

I believe it’s to do with the former and not the latter.

 

[Jhhnn]

Only long term capital gains. I suppose it begs the question on the spirit of intent behind taxing long term investments more favorably than short term ones?

Is it to encourage long term investment over short term? Then inflation certainly takes a chunk out of the profit of long term investment.

Is it to offset inflation? Then this proposed change would be redundant.

I believe it’s to do with the former and not the latter.

It has to do with the top down class warfare of looting the Treasury. The end game is to destroy the ability of the govt to actually help the people. Can't afford it when interest payments & military spending gobble up the revenue stream.

Borrow an extra $1.5T from the Rich to give it back to them as tax cuts. Pay interest forever. Such a deal!

 

[SP33Demon]

And duh-vert, of course. This tax cut would have zero benefit for half the population & is just another GOP giveaway to the ultra wealthy.

It'll all trickle down, right?

If you've been paying attention, it leaves more money for businesses to re-invest. More money for businesses is usually good and yes it does trickle down to investors and/or shareholders. Everyone on this forum should have some money they can put into these companies' stocks.

My real problem with big business in this country are the monopolies. Remember what happened when FDR had to bust them up? We're getting to that point now. The government has absolutely failed at its job to prevent monopolies. E.g. when scores of citibank employees are put on a list and given to Obama, who hired all of them, we now have a problem of a government that will only rule in favor of financial monopolies. When we have a president (W) who wrote 2.9 Trillion dollar check interest free to big banks over a cleverly planned and orchestrated "crisis", then we have a monopoly problem. If there was more competition and actual monopoly regulation, it would keep a lot of these companies honest. The government has utterly failed to do its job on monopolies regardless of who is in office and it's time to clean house. The problem is finding someone like Trump who isn't bought out by Soros or the Koch Bros or [insert big money donor here], let alone get them to go after these big companies like Amazon. Hopefully Trump takes Bezos down, fuck him and his postal subsidies. On a sidenote, have you noticed that amazon now isn't the cheapest on everything? I bought some vitamins last week from luckyvitamin, with their sales they destroy amazon's prices. Target, I bought diapers the other day with a gift cert that smoked amazon. That company can't fold fast enough.

 

[Jhhnn]

If you've been paying attention, it leaves more money for businesses to re-invest. More money for businesses is usually good and yes it does trickle down to investors and/or shareholders. Everyone on this forum should have some money they can put into these companies' stocks.

My real problem with big business in this country are the monopolies. Remember what happened when FDR had to bust them up? We're getting to that point now. The government has absolutely failed at its job to prevent monopolies. E.g. when scores of citibank employees are put on a list and given to Obama, who hired all of them, we now have a problem of a government that will only rule in favor of financial monopolies. When we have a president (W) who wrote 2.9 Trillion dollar check interest free to big banks over a cleverly planned and orchestrated "crisis", then we have a monopoly problem. If there was more competition and actual monopoly regulation, it would keep a lot of these companies honest. The government has utterly failed to do its job on monopolies regardless of who is in office and it's time to clean house. The problem is finding someone like Trump who isn't bought out by Soros or the Koch Bros or [insert big money donor here], let alone get them to go after these big companies like Amazon. Hopefully Trump takes Bezos down, fuck him and his postal subsidies. On a sidenote, have you noticed that amazon now isn't the cheapest on everything? I bought some vitamins last week from luckyvitamin, with their sales they destroy amazon's prices. Target, I bought diapers the other day with a gift cert that smoked amazon. That company can't fold fast enough.

And the all too predictable double down on duh-version.

 

[fskimospy]

If you've been paying attention, it leaves more money for businesses to re-invest. More money for businesses is usually good and yes it does trickle down to investors and/or shareholders. Everyone on this forum should have some money they can put into these companies' stocks.

My real problem with big business in this country are the monopolies. Remember what happened when FDR had to bust them up? We're getting to that point now. The government has absolutely failed at its job to prevent monopolies. E.g. when scores of citibank employees are put on a list and given to Obama, who hired all of them, we now have a problem of a government that will only rule in favor of financial monopolies. When we have a president (W) who wrote 2.9 Trillion dollar check interest free to big banks over a cleverly planned and orchestrated "crisis", then we have a monopoly problem. If there was more competition and actual monopoly regulation, it would keep a lot of these companies honest. The government has utterly failed to do its job on monopolies regardless of who is in office and it's time to clean house. The problem is finding someone like Trump who isn't bought out by Soros or the Koch Bros or [insert big money donor here], let alone get them to go after these big companies like Amazon. Hopefully Trump takes Bezos down, fuck him and his postal subsidies. On a sidenote, have you noticed that amazon now isn't the cheapest on everything? I bought some vitamins last week from luckyvitamin, with their sales they destroy amazon's prices. Target, I bought diapers the other day with a gift cert that smoked amazon. That company can't fold fast enough.

That trickle down is working really well so far with Trump's first round of tax cuts, lol. Wages aren't just not going up, they are declining.

https://www.washingtonpost.com/news...workers-wages-arent-just-flat-theyre-falling/

 

[hal2kilo]

It's Steve Mnuchin. Who do you think benefits? The pampered Rich, that's who-



https://www.washingtonpost.com/news...or-real/?noredirect=on&utm_term=.91386aeb31cb

That was before the latest round of tax cuts. Let's give 'em another one! MAGA!

Pfft! Us 90%ters should just stay out of it. Nothing for us plebes.

 

[SP33Demon]

That trickle down is working really well so far with Trump's first round of tax cuts, lol. Wages aren't just not going up, they are declining.

https://www.washingtonpost.com/news...workers-wages-arent-just-flat-theyre-falling/

In your dreamland commutopia more jobs AND wages go up at the same time. Too bad this ain't dreamland - pick one.

 

[SP33Demon]

And the all too predictable double down on duh-version.

Stop whining and invest more. Do you really need to eat another box of donuts and a 2L of diet soda b/c they "cancel each other out"? lulz brah

 

[Jhhnn]

Stop whining and invest more. Do you really need to eat another box of donuts and a 2L of diet soda b/c they "cancel each other out"? lulz brah

And now, utter gibberish.

If trickle down actually worked as advertised then the share of national income going to the top 1% wouldn't have doubled at the expense of the lower 75%.

And, uhh, thanks for your concern.

 

[sactoking]

In your dreamland commutopia more jobs AND wages go up at the same time. Too bad this ain't dreamland - pick one.

Ummm, as jobs increase wages should remain level until excess labor has been absorbed back into the labor force at which point supply of jobs exceeds supply of labor, giving workers leverage to increase wages. So increased jobs coupled with increased wages isn't "dreamland commutopia" it's basic capitalist economics.