Trump Teases Another Tax Cut

Yuval Rosenberg
·2-min read

President Trump said Monday he’s looking “very seriously” at some new tax cuts.

“We’re looking at also considering a capital gains tax cut, which would create a lot more jobs,” Trump told reporters at a White House briefing Monday. “So we’re looking very seriously at a capital gains tax cut and also at an income tax cut for middle-income families. We’re looking at expanding the tax cuts that we’ve already done, but specifically for middle-income families, and you’ll be hearing about that in the upcoming few weeks, and I think it’ll be very exciting.”

Trump has repeatedly teased middle-class tax cuts. Last September he said he would announce a “very substantial tax cut for middle income folks” in the next year.

The capital gains tax cut is an idea that has been pushed by some of his advisers but that Trump rejected last September, when a spokesperson said the president did not feel enough of the benefits would go to the middle class. Trump himself said a capital gains tax cut is "perceived as somewhat elitist."

Trump can’t just cut the 20% long-term capital gains tax rate on his own. Congress would have to do that. But some Trump advisers have pressed the president to enact an executive order allowing gains to be indexed to inflation, a change that could dramatically lower taxes due on sold assets that had been held for extended periods. In such cases, no taxes would be paid on appreciation in value tied to inflation.

Fox Business provides an example:

“For instance, if an individual purchased an asset for $100 in 2000 and sold that item 18 years later for $200, the nominal capital gain would be $100, according to the Tax Foundation. But inflation over that same time period would have increased the price level by 49%. Under an indexing proposal, the original selling price would increase to $149 — meaning the individual would only pay a tax on $51, instead of the full $100.”

The benefits of such a change would mostly flow to high-income households, with the top 1% receiving 86% of the tax cut, according to 2018 estimates by the Penn Wharton Budget Model cited by Bloomberg News. The model projected at the time that indexing gains to inflation would reduce tax revenue by $102 billion over a decade.

The Tax Foundation similarly found in 2018 that inflation indexing would reduce federal revenue by $178 billion over a decade, or by $148 billion once economic feedback effects were factored into the calculations. But the Tax Foundation analysis said the economic benefits of a cut would be limited, with after-tax incomes rising by 0.2% on average for all taxpayers and the largest increase going to the top 1%, who would see an increase of 0.83%.

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